Insider trading is the name for when someone either buys or sells stocks and other financial investments based on confidential information that is not available to members of the general public. For example, when someone sells their stocks in a particular corporation because one of its executives tells them that it will be releasing an income statement showing massive losses, that would be considered insider trading because they are benefiting themselves by using confidential information that will not be available to members of the general public until after the income statement has been released. The Securities and Exchange Commission as well as other authorities in charge of such matters tend to take a dim view of such practices for the simple reason that it gives well-connected investors an enormous advantage over members of the general public, meaning that it causes direct damage to public trust in stock markets as well as similar institutions. Something that is absolutely devastating to their viability in the long run.
Given how well-connected celebrities are, it should come as no surprise to learn that they often know things that are not known to members of the general public. As a result, it is unsurprising that some of them will attempt to benefit themselves using such knowledge, with the most recent example being Phil Mickelson, who is currently being sued by the Securities and Exchange Commission for using an insider tip from someone he was golfing with in order to make $931,000 in profit from buying Dean Foods stock before it announced a new subsidiary that was sure to interest other investors. However, it is important to note that the famous golfer is far from being the first big name to benefit from insider trading, and chances are good that he will not be the last.
Here are 10 examples of other big names who have been busted for insider trading
Martha Stewart is perhaps the most famous example since her case was not just recent but also one of the most high-profile news items at the time. In short, she used insider information about a FDA ruling against a drug in order to make a profit by selling her stock in the drug maker, for which she spent five months in prison after she was convicted in 2004. Amusingly, Stewart is said to have lost the annual Christmas decorating contest that was held at the prison in spite of her multi-million dollar empire founded on homemaking as well as everything else related to the home.
People who remember Enron should know that Enron’s CEO, Jeff Skilling, was charged with insider trading for selling his stock in the corporation before its collapse. Given that he had committed a host of other crimes ranging from conspiracy to securities fraud, he was sentenced to a total of 24 years in prison.
R. Foster Williams was once a writer at the Wall Street Journal who wrote an influential column called “Heard on the Street” in the 1980s. Unfortunately, he used the insider knowledge that he gained as a journalist to benefit himself by leaking it to a stock broker who would make trades on his behalf. As a result, Williams is a literal textbook case of what not to do as a journalist, seeing as how his name still comes up in courses on journalism ethics.
Steven A. Cohen is still running the hedge fund that used to bear his name because he was not a direct participant in insider trading, but his name has fallen far ever since the Securities and Exchange Commission found two of his employees guilty of doing so. As a result, the hedge fund was fined an enormous amount of money for its neglect, while Cohen is still being sued in civil court for the same.
Once a specialist in arbitrage, Ivan Boesky had to pay $100 million to the Securities and Exchange Commission as a settlement after he was charged with insider trading worth $50 million. Furthermore, he pleaded guilty to a related charge, for which he spent 3 and a half years in prison in 1987.
James McDermott Jr. was the CEO of Keefe, Bruyette & Woods, which was an investment bank. He passed insider information onto his mistress, Kathryn Gannon, who went by the name Marilyn Start in her adult films. As a result, McDermott spent eight months in prison while Gannon spent three months in prison, with McDermott paying $25,000 in fines as well.
Raj Rajaratnam was famous for founding a rich and powerful hedge fund firm named Galleon Group, which has since collapsed because he was found guilty of intending to trade using insider trading. According to the authorities who brought him in, the insider trading would have made $20 million, which is not worth as much as some of the examples here but still enormous nonetheless. Unsurprisingly, the news of such a scandal surrounding such an important figure in its leadership brought Galleon Group to its metaphorical knees.
Art Samberg, who headed Pequot Capital, was remarkable in how blatant he was in asking a Microsoft employee for insider information through emails sent in 2001. The result was $2.1 million in illegal profits for his hedge fund, which was followed by a $28 million settlement with the Securities and Exchange Commission. As a direct consequence of what happened in this case, Pequot Capital was forced to close in 2009.
Once Australia’s most famous banker, Rene Rivikin used insider information to make less than $400, which got him banned from stockbroking as well as 9 months in prison.
It remains to be seen whether Phil Mickelson will be found guilty or not of profiting from insider trading. However, his case is an important reminder that insider trading is a serious offense, no matter who commits and no matter when it was committed. Fortunately, the seriousness of the offense means that there are also authorities dedicated to making sure that offenders are caught as soon as possible so as to minimize the extent of the damage done to stock markets as well as similar institutions.