TigerSoft - www.tigersoft.com 1/8/2008 --- by
William Schmidt, Ph.D.
Insider Trading: News and
Reviews: Articles Found on the Net
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Erik Sirri, The SEC's Top Insider Trading Regulator
Desirability of Regulating Insider Trading.
If you have wondered why insider trading is so
the SEC goes after so few insiders who break the law
their insider knowledge of their company to trade their
company's stock to the detriment of the general public, wonder
more. The head insider trading regulator at the SEC. Erik Sirri,
not believe in his mission to level the investment playing field.
His statements reinforce my belief that the SEC is there simply to give the
appearance of fairness on Wall Street. It does just enough to keep
inclined to invest their savings in stocks. Real punishment of the widespread
extant is not seriously considered.
Erik Sirri, the Director of the SEC's division of market regulation stated:
world of important pricing efficiency, you want insiders trading because
the price will be more
efficient. That is as it should be." Then realizing he had gone too far in
speaking to his
audience, he stated that insider trading laws should still exist to protect
apparently, they just should not be aggressively enforced. His view is that
protection" is rapidly becoming little more than full-employment devices for tort
Sirri was a Professor of Finance at Babson College and Governor of the Boston Stock
Exchange and a member of the Boston Options Exchange. His pro-investment banker
clearly diminish the amount of protection he would give the small investor. The
come from an article Investment
Banks, Scope, and Unavoidable Conflicts of Interest,
Review, Federal Reserve Bank of Atlanta, Fourth Quarter 2004, pp. 23-35.
Astonishingly, his view is that brokerage analysts should be "discouraged" (not penalized,
prosecuted, fined and jailed) for "privately disparaging stocks as an advisor to
publicly recommending them as "strong Buys". He accepts that the analyst knows
stock's promoter when his firm is, or wants to be, that company's investment
very lucrative function. Amazingly, Sirri suggests that
the investment community discounts such
advise already, because the conflict of interest is known.
HARDLY! Sirri maintains
evidence that analyst buy/sell recommendations are biased, the market appears to
correct for this bias." The truth is very different. The public is very often fooled by such
recommendations. They foolishly trust their brokerage, because they are not told
conflict of interest. Sirri also denies that the
"underwriting mandate is not 'bought' through the
issuance of biased or overly optimistic research." Strangely, he then goes on
in this article to quote
research that shows that "the market IS fooled by the biased recommendations of
analysts". (Michaely and Womack)
He raises the issue of the conflict of interest occurring when the research analyst
opinion for the brokerage's own trading purposes and another for the public.
"Such ... conflicts
abound." Trading ahead of of their public customers "is of course
prohibited." But "trading
principal against uninformed retail flows is a clear conflict of interest by an investment
has to date passed muster with regulators." He offers another example.
What if the
analyst reaches the conclusion that a particular stock should be downgraded but the
or its biggest institutional clients have a considerable position in the stock? If
out the Sell to the public, the firm could hurt its relationship to its biggest clients or
damage its own trading. Sirri is clearly sympathetic to the brokerage and not
demand that the public has an equal right to get a timely Sell recommendation.
Sirri assures us
there is "no strong linkage between analyst actions and harm to investors. He
to separate investment banking from research. Without proof, he further states that
quality of such independent research has fallen.
Anyone sincerely interested in learning the truth about how small investors have suffered
the hands of Wall Street insiders should read any of the many books on the subject.
Wall Street Lies: An Individual Investors Guide to Profitability."
By Jordan Elliot Goodman, 2003
"Is Your Broker Acting In Your Best
Dishonest Broker Tactics"
"Front Page: Wall Street to Reform Analyst
Stock Fraud Lawyers - California
Stock Broker Fraud Attorneys ...
Everyone Knows Wall Street Is Rigged
New York Attorney General Eliot Spitfire reached a $100 million
settlement with Merrill Lynch in 2003 for
investors with questionable research. However, in October of 2003, U. S. District Judge
lawsuits against Merrill Lynch and Company. Judge Pollack stated that an investor would
be a moron to not
know that Wall Street is rigged. Judge Pollack wrote "The plethora of public
about analysts "would have required even a blind, deaf or indifferent investor to
at bankers' books for stealth subprime exposure
There's never only one cockroach:The Wall Street Journal says that the SEC is scrutinizing
the books of the
major brokerage firms to make
sure that they're not sweeping subprime associated losses under the rug:
The SEC is looking into whether Wall
Street brokers are using consistent methods to calculate the value of subprime-mortgage
assets in their own inventory, as well as assets held for customers such as hedge funds,
the same people said. The concern: that the firms may not be marking down their inventory
as aggressively as assets held by clients.
While the issue is a technical one, and
such checks occur routinely, it is sensitive for the markets. That is because, at least
through their latest earnings reports, few big Wall Street firms have reported big
subprime losses despite the turmoil roiling the markets. "