Much ink has been spilled this week on revelations that the US Attorney’s office in the Southern District of New York and the FBI have gone into overdrive in an insider- trading investi gati on that casts a wide net across Wall Street — ranging from hedge funds to invest ment banks.
Given the fact that it has been a good 25 years since the last big insider- trading bust, many have been quick to dismiss the likely dam age. Some have gone so far as to say that the probe is so sweep ing, it will catch the minnows, but no big fish.
But Wall Street should turn a blind eye to the investigation at its own peril.
That’s because with US Attorney Preet Bharara, the Justice Department’s cop on the beat, Wall Street is facing its toughest enforcer since Rudy Giuliani held the office back in the 1980s.
And like Giuliani, who used powerful racketeering laws to bring down Drexel Burnham, Bharara is employing some of the same bare-knuckles tactics usually reserved for mob bosses.
This week we learned he has been making broad use of wiretaps in his investigation. The raid on three hedge funds this week was eerily reminiscent of February 1987, when federal agents carried out a coordinated sweep of Kidder Peabody and Goldman Sachs, which led to several traders being paraded from their offices in handcuffs.
Back then, as now, there was much talk of federal overreaching and grandstanding. Giuliani, not yet the hero of 9/11, was the most hated man on Wall Street. But the insider-trading probe that started with the 1986 arrests of Dennis Levine, Marty Siegel and the oily arbitrageur Ivan Boesky eventually led to carnage on Wall Street, dozens of criminal prosecutions and ultimately the collapse of Drexel in 1990. As for big fish, Giuliani ensnared plenty.
But while the insider-trading probe of the late ’80s shows the sheer power of government prosecutors on the prowl, those under investigation should also consider the toxic political climate of late 2010.
If Americans were put off by the antics of Boesky, who reportedly would order two entrées at a restaurant before deciding which one to eat, they are positively repelled by the many of the hedge fund billionaires who have continued to flaunt their private planes and private islands during the Great Recession. As Bharara has said, referring to his insider-trading dragnet, “Sometimes, greed is not good.”
A well-executed investigation into the trading of well- timed in formation among Wall Street’s top players will go a long way toward restoring some confidence. Let’s hope the US At torney is heading in that direction.
If so, the en tire US econ omy will be well-served.