Twenty-two years ago Monday the equity markets crashed and the Dow Jones Industrial average cratered by a whopping 22%.
Have our markets, economy, and financial regulatory oversight progressed, regressed, or is it merely deja vu all over again?
Well, with the markets up 1% on the day and 50% off the lows in March of this year, clearly this Monday is vastly different than the one 22 years ago, right? Honestly, I would maintain that from a grand perspective very little has changed. Why? How?
As much as we may have made technological progress on a number of fronts both on and off Wall Street, the fraud implicit in the illegal use of information is still very much central to the corruption that occurs on Wall Street.
Back in the mid to late ’80s, insider trading activity was rampant in a number of hedge funds and leveraged buyout activities. The so-called king of Wall Street at that time was Ivan Boesky. As it turns out, Boesky was nothing more than a common criminal involved in a massive insider trading scandal. When Boesky was confronted with the evidence of his criminal activities, he turned on his cronies and sang like a canary. In relatively short order, some of Wall Street’s titans -- including Dennis Levine, Robert Freeman, Martin Siegel and Michael Milken -- fell like dominoes. These masters of the universe were nothing more than white collar criminals.
Fast forward to 2009, and the markets are rebounding and Wall Street is back to ‘business as usual.’ In a manner of speaking, the ‘business as usual’ is no different than the business that occurred back in the ’80s. What business is that? Insider trading.
The story that broke on Friday involved a number of individuals at hedge funds supported by corporate insiders at IBM (NYSE:IBM) and Intel (NASDAQ:INTC) and is certainly only the tip of the iceberg as far as insider trading circa 2009 is concerned. Bloomberg addressed this certainty in writing: U.S. Said to Target Waves of Insider-Trading Activities:
Federal investigators are gearing up to file charges against a wider array of insider-trading networks, some linked to the criminal case against billionaire hedge-fund manager Raj Rajaratnam that shook Wall Street last week, people familiar with the matter said.
The pending crackdown, based on at least two years of investigation, targets securities professionals including hedge- fund managers, lawyers and other Wall Street players, the people said, declining to be identified because the cases aren’t public. Some probes, like the one focused on Rajaratnam, rely on wiretaps. Others stem from a secret Securities and Exchange Commission data-mining project set up to pinpoint clusters of people who make similar well-timed stock investments.
I am sure there are individuals going home today wondering if their illicit activities will be or already have been detected.
Fraud driven by greed is a timeless activity made only more prevalent by an industry which has corrupted itself by diluting its regulatory oversight.
October 19, 2009….deja vu all over again.