One of the givens of Las Vegas is that the odds are always stacked in favor of the house. But to the credit of Nevada’s gaming commission, aggressive measures are taken to ensure that only individuals with squeaky clean records are allowed to operate casinos. Just associating with someone of questionable repute can lead to a revocation of a casino license.
The arrest Thursday morning of 14 more individuals accused of insider trading serves as yet another reminder as to why Wall Street must be regulated with the same aggressiveness and diligence as state-licensed casinos. With more than three decades of experience representing individual investors who were deceived or cheated by Wall Street firms I can say with considerable authority that unmitigated greed and dishonesty is rampant in the securities industry. While Federal prosecutors are to be commended for collaring nearly 24 alleged cheaters connected with Galleon Group for trading on inside information, they simply don’t have the resources to root out the legions of crooks that permeate the stock markets.
The latest arrests include yet another well known hedge fund and an attorney from a prestigious law firm and underscore how insider trading activity typically involves a tangled web of conspirators who often work at well known and seemingly respectable organizations. What is especially alarming is that Galleon founder Raj Rajaratnam and some of his accused cohorts have allegedly been involved in other questionable and possibly illegal activities but nonetheless were allowed to continue to operate unfettered. Rajaratnam’s earlier problems with the SEC and the IRS quite possibly could have prevented him from getting a Nevada gaming license, but it didn’t stop him from taking in institutional assets and being one of Wall Street’s most active players.
Contrary to what some economists and academics theoretically argue, insider trading amounts to criminal theft and it is not a victimless crime. For every buyer of a stock there has to be a seller, and if someone has material inside information about a company, he or she has a decided advantage determining an appropriate price for the security. Insider trading is somewhat akin to card counting - a practice that will get you permanently barred from Las Vegas casinos. It cannot be allowed or tolerated in the securities industry.
What is needed on Wall Street is a suitability rule to determine who is qualified to work in the securities business. Demonstrating character should be a major criterion and repeated SEC and other regulatory violations should be grounds for a permanent ban. I appreciate that a character standard would forever bar countless Wall Street executives, but we need to dramatically raise the securities industry’s admission bar to facilitate meaningful change and ensure a level investor playing field.
The regulation of state casinos is admirably above politics, as state elected officials understand and appreciate that if character standards aren’t required and enforced, organized crime will ultimately gain control of the gaming industry. It’s high time that both parties in Congress come to realize that Wall Street is rife with corruption and a task force should be created to figure out how best to clean it up. The SEC clearly isn’t up to the task.
President Obama promised us “Change We Can Believe In,” and the Democrats control Congress. Ironically, Senate Majority Leader Harry Reid is a former chairman of the Nevada Gaming Commission whose unwillingness to be compromised by a gangster was featured in the Martin Scorsese film Casino. Mr. Reid has since been accused of some personal ethical lapses, but he could easily redeem himself if he used his gaming regulation expertise and spearheaded a movement to take on Wall Street’s powerful lobby and create a no-nonsense regulatory agency akin to the Nevada Gaming Commission.
Now that would be real change we could believe in.
