enforcement chief, Gary Lynch, at this time went into private practice, defending big Wall Street firms. Harvey Pitt, the former SEC general counsel, defended Boesky and negotiated his cooperating agreement. Boeskyâs cooperation became instrumental in the conviction of Michael Milken, the highest-ranking Wall Street executive to be charged in the crackdown.
And yet, insider trading was hardly a settled matter. Milken didnât go to jail for criminal insider trading. The Justice Department in the final indictments relied on more nebulous criminal violations such as mail and wire fraud involving market manipulation. And with good reason: The misappropriation theory was challenged again and again with some success. Foster Winans, a writer for the Wall Street Journal , was charged with handing traders prepublication details of his market-moving âHeard on the Streetâ column. He spent eighteen months in jail for receiving some $30,000 in payments for giving traders an early read on the column, but his appeal reached the Supreme Court, which produced a mixed verdict.
The Court upheld his conviction but was deadlocked on whether Winans, as a newspaper columnist instead of a true corporate insider, had indeed violated the misappropriation theory. The vexing question the Court left unanswered was how someone who didnât work for any of the companies involved in the mergers he reported on, and who didnât pay someone to steal the information, could meet the legal test of insider trading.
W all Street survived the 1987 stock market crash, and the junk bond market was only temporarily stymied when it lost brainchild Michael Milken to a prison term, but the lessons of the 1980s were short-lived.
Greed was back.
In the early 1990s, Orange County, California, would gamble with complex financial products known as derivatives and lose so much money it would be forced to declare bankruptcy. Its Wall Street adviser, Merrill Lynch, would stand by silently counting the millions it had earned from selling these risky products to public officials who had no clue what they were buying. Brokerage firms merged with white-shoe investment banks, meaning firms like Morgan Stanley could now pump up endless IPOs and other stock deals to mom-and-pop investors in its Dean Witter brokerage unit. The 1990s was the decade of the average investor on Wall Streetâeven if Wall Street didnât miss its chance to screw its most vulnerable customers. A combination of newfound affluence and a need to find investments for retirement made the stock market the place for average investors to save.
As the SEC fretted over how to keep the pressure on inside traders, it failed to grasp how the vast changes on Wall Street, including the creation of mega-banks such as Citigroup, posed potentially bigger problems for the average investor. Stock market research became more suspect; banks themselves were so big that their corporate clients became their best customers, and thus no analyst or researcher would dare slap a âsellâ recommendation on a company that was paying his or her salary.
In these new megabanks, the small investor wasnât viewed as a client, but as a conduit used to pump up the value of the bankâs real clientsâcorporate customers such as Enron and WorldCom and countless overhyped technology companiesâeven if those clients were frauds, as more than a few turned out to be. The small investor had little reason to suspect that analysts were now reduced to little more than touts; such relationships were barely disclosed outside the fine print of research reports.
This compromised research would play a large role in the destruction of small investor wealth following the collapse of the Nasdaq stock market in 2000. What was the SEC doing at this time? Not much when it came to cracking down on Wall Streetâs research scam or the growing menace of the big banks. In fact the SEC didnât even
And yet, insider trading was hardly a settled matter. Milken didnât go to jail for criminal insider trading. The Justice Department in the final indictments relied on more nebulous criminal violations such as mail and wire fraud involving market manipulation. And with good reason: The misappropriation theory was challenged again and again with some success. Foster Winans, a writer for the Wall Street Journal , was charged with handing traders prepublication details of his market-moving âHeard on the Streetâ column. He spent eighteen months in jail for receiving some $30,000 in payments for giving traders an early read on the column, but his appeal reached the Supreme Court, which produced a mixed verdict.
The Court upheld his conviction but was deadlocked on whether Winans, as a newspaper columnist instead of a true corporate insider, had indeed violated the misappropriation theory. The vexing question the Court left unanswered was how someone who didnât work for any of the companies involved in the mergers he reported on, and who didnât pay someone to steal the information, could meet the legal test of insider trading.
W all Street survived the 1987 stock market crash, and the junk bond market was only temporarily stymied when it lost brainchild Michael Milken to a prison term, but the lessons of the 1980s were short-lived.
Greed was back.
In the early 1990s, Orange County, California, would gamble with complex financial products known as derivatives and lose so much money it would be forced to declare bankruptcy. Its Wall Street adviser, Merrill Lynch, would stand by silently counting the millions it had earned from selling these risky products to public officials who had no clue what they were buying. Brokerage firms merged with white-shoe investment banks, meaning firms like Morgan Stanley could now pump up endless IPOs and other stock deals to mom-and-pop investors in its Dean Witter brokerage unit. The 1990s was the decade of the average investor on Wall Streetâeven if Wall Street didnât miss its chance to screw its most vulnerable customers. A combination of newfound affluence and a need to find investments for retirement made the stock market the place for average investors to save.
As the SEC fretted over how to keep the pressure on inside traders, it failed to grasp how the vast changes on Wall Street, including the creation of mega-banks such as Citigroup, posed potentially bigger problems for the average investor. Stock market research became more suspect; banks themselves were so big that their corporate clients became their best customers, and thus no analyst or researcher would dare slap a âsellâ recommendation on a company that was paying his or her salary.
In these new megabanks, the small investor wasnât viewed as a client, but as a conduit used to pump up the value of the bankâs real clientsâcorporate customers such as Enron and WorldCom and countless overhyped technology companiesâeven if those clients were frauds, as more than a few turned out to be. The small investor had little reason to suspect that analysts were now reduced to little more than touts; such relationships were barely disclosed outside the fine print of research reports.
This compromised research would play a large role in the destruction of small investor wealth following the collapse of the Nasdaq stock market in 2000. What was the SEC doing at this time? Not much when it came to cracking down on Wall Streetâs research scam or the growing menace of the big banks. In fact the SEC didnât even
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