For decades, people with power, important figures, have been caught insider trading. Why do most people decide to commit fraud you may ask?
Well, it’s quite easy, for power and money. However, it doesn’t take long until their image, prestige and their empire fall fast and hard.
Over the years the public was shocked to learn that people who had everything would fall into disgrace. Take a look at the story below to learn how and why individuals from the upper echelons of society went from having everything to nothing.
But for those who are not familiar with the whole process of insider trading and how it works, we’ll break it down for you.
What Is Insider Trading?
The process of insider trading implies one person who buys certain stocks from the market, knowing from an inside source that those stocks will be profitable in the near future. The data shared with the buyer is not public and, sometimes, is even confidential.
This is a serious crime and it’s punished with up to 20 years in prison and a maximum $5 million fine. The Securities and Exchange Commission, also known as the SEC, is closely monitoring purchases and sales of stocks to make sure the game is played fairly.
For centuries individuals with deep connections who had access to information of the sort had been charged for this felony. Read the full story to find out which personalities did it and what their fate was after being discovered committing fraud.
1. R. Foster Winans
Winans was a popular journalist from the ’80s who was writing pieces for the Wall Street Journal and he agreed to sell some information to a stockbroker named Peter Brant.
Winans was disclosing to the broker inside information regarding several articles of his before publishing them in the newspaper.
The broker had a reward of almost $700,000 from the scheme, while Winans got $30,000. He was caught and trialed in 1985. He served less than a year in jail for being a part of this fraud. The writer mentions he and the broker made at least 24 trades in four months.
How did he get caught? The stocks Brant wanted to obsessively buy caught the eye of the Stock Exchange.
2. Jeffrey Skilling
If you are unfamiliar with the name, Jeffrey Skilling was the CEO of Enron. Enron was a very big corporation founded in 1985 which hit glorious numbers.
However, their sweet success came to an end when, among other serious felonies, the CEO sold shares of the company which were in worse shape then it was led to believe.
He was indicted for 10 counts of insider trading, however we was charged for only one. That being said, he was found guilty with several other crimes and he got a sentence of 24 years to spend in jail and a $45 million fine.
Despite that, he was freed 10 years early.
3. Martha Stewart And Samuel Waksal
Probably the most famous scandal regarding insider trading. Martha Stewart the beloved American homemaker, was jailed for five months and fined with $30,000 for obstruction of justice.
In 2004, she used inside information from the FDA regarding a drug made by ImClone to sell her stocks, information given to her by her broker who was also charged and imprisoned.
Previously, in 2001 to be more exact, the CEO of the ImClone company was also caught for inside trading and fraud after he found out that medication made by his company was rejected by the officials and he tried to sell the stocks anyway. He was imprisoned for more than 7 years.
4. SAC Capital Advisors
Steven Cohen was a respectable hedge fund manager in New York City and Connecticut. He founded the SAC Capital Advisors group which in 2013 was charged for conspiracy and securities fraud.
Cohen was not arrested, however his hedge fund hit the record and was fined with more than $1 billion after the organization pled guilty.
Top traders from the fund were arrested and his name fell to its grace since the SEC made the discovery and the scandal broke loose. Cohen was still in charge of the SAC since he wasn’t directly involved in the scheme.
5. James McDermott Jr.
James McDermott was among the powerful people of New York City in the ’90s. He was the CEO of Keefe, Bruyette & Woods, a popular investment banking firm. His life took a turn when he gave inside information about banking mergers to his mistress, an adult movie star.
He was initially sentenced to 24 months in prison, however his lawyer defended his actions by saying that he made these decisions because of his alcohol addiction and depression and McDermott got only 8 months and was fined with more than $20,000.
His mistress also got a few months in jail.
6. Ivan Boesky
Ivan Boesky was an important and famous figure in the ’80s in the corporate and investment branch. He would be tipped off by several companies about upcoming takeovers and he would invest in those organizations.
He was sued 1987 by a group which accused him of deceiving them in their partnership and that was when the SEC started to investigate him. Boesky was paying off employees from the M&A department in several companies.
At the time, almost every deal regarding M&A made him a very wealthy man. Until he wasn’t. He made a deal with the SEC and became their informant, paid them$100 million and went to prison for just two years.
7. Michael Milken
As a part of his plea deal, Ivan Boesky also had to provide names to the SEC, and one of them was Michael Milken. Milken was using information regarding takeover deals in order to buy and sell stocks of the connected firms.
He was charged with insider trading, stock manipulation and fraud.
In 1989, Milken was indicted by the grand jury with 98 counts of racketeering and fraud. He pleaded guilty, had to pay a $600 million fine and was banned for life from the securities industries.
In 2020, the former president Donald Trump pardoned Michael Milken.
8. Raj Rajaratnam
Rajaratnam was the founder of a very popular hedge fund in New York at the time, called Galleon Group. In 2009, he was arrested for trying to trade using inside knowledge. If the scheme would have worked he would’ve made $20 million.
In 2011, the grand jury found him guilty of 14 counts and sent him to prison for 11 years and fined with $150 million. However, he was released earlier than he was supposed to, in 2019.
The other conspirer, the Goldman Sachs executive, was also convicted for supplying tips for Rajaratnam. Following the bad image of the firm and the lack of trust the Galleon Group fell apart after the founder’s conviction.
9. William Jackson and Brian Callahan
This case is similar to R. Foster Winans case, this one involving the Business Week media outlet.
William Jackson, a printing worker, and Brian Callahan, a stockbroker, were caught and indicted for trading inside information. They would use information from the Business Week magazine before it was disclosed to the public and buy or sell stocks.
Each has made a total of $19,000, however it didn’t take long until they were caught. They were ordered to pay back the money plus a $37,000 fine.
A former editor from the same newspaper, named Rudy Ruderman, was also caught buying stocks after getting information from the magazine before being published. He was found guilty and spent half a year in jail.
Being an active individual on the stock market, buying or selling stocks is a challenging and demanding thing to do. New giants join the game and you have to constantly pay attention to the next moves you’re gonna make.
Yes, it’s a tricky business, however cutting it short and trying to take the easy way will get you in trouble. Most of these people committed the felony because they thought they are untouchable or smarter than the system. Little did they know about how the tables would turn.
Let us know in the comments what other big personalities you know that were caught red handed.