We've all read accounts here and there about suspicious trading in the stocks and options of companies involved in mergers and acquisitions (M&A) before the deals were announced.
But you probably didn't realize it might be this pervasive: a new study indicates that up to 25 percent of all M&A deals involving publicly traded companies may involve insider trading,
Andrew Ross Sorkin writes in The New York Times.
The study comes from professors Menachem Brenner and Marti Subrahmanyam of New York University and Patrick Augustin of McGill University in Montreal and was published by the
IRRC Institute.
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They looked at 1,859 transactions from 1996 through 2012 and focused on stock option activity to see if unusual trading occurred within 30 days of the deal being publicly announced.
While, up to 25 percent of the deals may have been tainted by insider trading, the Securities and Exchange Commission (SEC) litigated only 4.7 percent of them, the professors say.
However, they write, "It takes the SEC, on average, 756 days to publicly announce its first litigation action in a given case. Thus, assuming that the litigation releases coincide approximately with the actual initiations of investigations, it takes the SEC a bit more than two years, on average, to prosecute a rogue trade."
If the study is accurate, "the government has a lot of catching up to do," Sorkin writes.
Meanwhile, the government faces some difficult obstacles in its fight against insider trading. The trial of convicted insider trader Raj Rajaratnam's brother Rengan, which starts Tuesday, will provide one test,
The Wall Street Journal reports. Raj Rajaratnam, founder of the Galleon Group, is serving an 11-year prison sentence after being convicted of trading on inside information.
This represents the first insider trading trial for Manhattan federal prosecutors since a federal appeals court signaled in April that they might have defined insider trading too widely.
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