SEC Probe on Insider Trading Is Getting Interesting

At first I thought it was nothing more than a "wag the dog" operation by the SEC to divert public attention from a much bigger mess (mortgage/foreclosure fraud), but it may get traction as more prominent hedge funds get subpoenaed.

First, it was these smallish three on Monday:

Diamondback Capital Management ($5.8 billion assets in management)
Level Global Investors
Loch Capital Management ($2 billion assets in management)

Then today, much bigger funds got ensnared:

Janus Capital Group Inc. ($161 billion assets in management)
Wellington Management ($598 billion assets in management)
SAC Capital Advisers
Citadel Asset Management

Why is the SEC going after hedge funds? Fines of few million dollars? Peanuts. Or is the SEC using these funds as bait to catch much bigger fish on Wall Street?

Now, Zero Hedge's Tyler Durden, citing FOX's Gasparino, says Goldman Sachs may get roped into the insider trading probe, via Diamondback. Now we are talkin'....

However, as soon as the investigation gets close enough to Goldman Sachs, it will be inexplicably shut down, if the past is any indication, and we are supposed to forget anything about insider trading. By that time, the foreclosure fraud, securitization fraud, and mortgage fraud will be all forgotten. Oh, so it IS a "wag the dog" operation after all...

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Did Goldman Sachs Short Itself and Short the Market?

Rumors were circling today. If it did, that's chutzpah at its best (or worst, depending on your perspective). If GS the Vampire Squid is going down, everybody else is going down!

And they did, big time. Major US indices may have bounced back and ended with 1.6% loss at most (S&P500), but individual stocks in the indices went down much, much more, regardless of whether they are financial stocks or not.

Did Goldman Short Itself, Reuters Reports Goldman Was Told In Advance It Faced SEC Action (4/16/2010 Zero Hedge)

"Time for the SEC to take a look at what bets Goldman's prop desk, and material affiliates as well as hedge funds that are close to Goldman's flow traders, were taking on Goldman's stock over the past few days. If indeed Goldman shorted itself, bought SPY puts, bought octuple leveraged negative financial ETFs, or something else of the sort, on material non-public information, it would be time to shut the firm down." [Emphasis is original.]

And:

Talk From The Pits: Goldman Sold 1,000 Large S&Ps Earlier (4/16/2010 Zero Hedge)

"From the open outcry pits:

Goldman sold 1,000 big SP today over 1,200.00. Was it just a hedge because they
KNEW the SEC would do nail them to the cross? Is that insider trading? Who knows
how many tens of thousands they sold in the ES?

"We can hope the SEC still hasn't blocked Zero Hedge and is reading these very pertinent questions. "

For more on what the SEC's action on an Op-Ex cay did to the market, GS share price, and April option prices (someone made an immoral amount of money), take a look at my trading blog.

(And oh BTW, Mercury Retrograde starts on April 17 at Taurus, the bull.)

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FBI probes possible insider trading by SEC lawyers

From AP article [emphasis mine]:

"Federal prosecutors and the FBI have been investigating possible illegal insider trading by two Securities and Exchange Commission enforcement attorneys who were in a position to receive sensitive information about agency probes of public companies.

"The SEC's inspector general, David Kotz, found that the frequent stock trades over a two-year period by the pair raised suspicions of insider trading. Earlier this year, he referred the matter to the Fraud and Public Corruption Section of the U.S. attorney's office in Washington.

"The SEC enforcement attorneys, one male and one female, each earn more than $160,000 annually and had stock portfolios estimated to be worth more than that, according to Kotz's report. They often e-mailed each other about stocks and their trades, it said. The attorneys and the companies whose stock they were said to have traded weren't named.

"... they both traded in the stock of a large financial company after being told by a colleague about investigations of the company, a violation of SEC rules, according to the report.

"Two months before an SEC investigation of a large health care company was opened, according to Kotz's report, the female attorney sold all her shares in the company. She traded stocks 247 times between in 2006 and 2007, the report said."

247 times. That would have earned her the gold-level pricing on my brokerage account...

"Both attorneys "inexplicably" testified to investigators that they failed to see how sending e-mails to the male attorney's brother and sister-in-law from his SEC account could create the appearance that he was improperly sharing nonpublic information with someone outside the SEC, the report says."

Create the appearance? That's an understatement. But SEC has this to say:

""We take seriously even the suggestion that any SEC employee would engage in insider trading," according to a statement from the agency. "We note that the (inspector general's) report neither accuses any SEC employee of insider trading nor concludes that any such conduct took place.""

As long as you don't openly say it, it's OK. No one has done anything wrong.

Remember the recent headline on another insider-trading/conflict of interest case? Proverbial tip of the iceberg that no one cares, because "we are moving forward not backward"?

New York Fed Chairman's Ties to Goldman Raise Questions
and 3 days later;
New York Fed Chairman Resigns

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