Inside traders of the “Facebook Generation” may be motivated by greed, just like the Wall Street buccaneers of yore, but their approach is far different, according to a study just released by a communications consultation organization.
In sharp contrast to insider trading of the 1980s, which was characterized by “masterminds” like Ivan Boesky, Dennis Levine, Martin Siegel and others, the insider trading of today is much more “socialized” — more democratic, as it were — because of the emergence of Facebook and its social-networking tools, according to the findings of Montieth & Co.
“Every generation commits crimes in its own, unique way and when you look at the people who engaged in insider trading today you can see the patterns of what we term intra-social networking,” said Montieth M. Illingworth, president of Montieth & Co. “This is insider trading in the age of the ‘Facebook Generation.’”
More than half the people charged by United States Attorney Preet Bharara, the Southern District of New York prosecutor who has made himself the scourge of Wall Street wrongdoers, were between the ages of 31 and 40, while the average age of all people charged was 42, the study found. “A number of these people were just coming out of graduate school when Facebook launched,” says the study. “They grew up in their professional lives with social networking as a model for interacting with others, for creating bonds and exchanging information.”
“In today’s intra-socially networking model, the power and influence is distributed more ‘democratically’ across a complexly interconnected network,” says the study, entitled “The Socialization of Crime: Insider Trading in America.”
The “paradigm” for this new style of insider trading was the case of the Galleon Group hedge fund, the study concludes. The most notable name linked to Galleon is Raj Rajaratnam, who amassed a fortune — much of it legitimately — but turned to insider trading to glean even more riches, according to federal prosecutors. He was convicted in 2011 and sentenced to 11 years in prison. And while prosecutors branded Rajaratnam as “the face of insider trading,” the study counts 33 people linked to Galleon-related crimes.
“There are at least six other intra-socially networked groups of defendants that were prosecuted by U.S. Attorney Bharara’s predecessors or by other U.S. Attorneys in other jurisdictions in a similar time frame,” the Montieth study observes.
With each group there is no one individual, no “mastermind” is orchestrating the scheme from the top of a hierarchical power structure, the study says. “In today’s intra-socially networking model, the power and influence is distributed more “democratically” across a complexly interconnected network.”
Like Levine and Boesky, Siegel made his name — and his money — in the world of investment banking. Today, by contrast, insider trading is far more diversified. The study found 11 different kinds of organizations, including hedge funds, banks, corporations and expert networks, involved in cases recently brought by federal prosecutors.
The study, not yet complete, finds reasons for optimism. “The core recommendation: social networking tools can be used by companies to educate employees, and the business partners they interact with, about the securities laws and raise the level of ethical behaviors and compliance.”