Men who have occupied the seat of United States Attorney for the Southern District of New York have portrayed themselves in recent years as protectors of the investing public. Through the use of insider trading laws, which only came into effect in 1968, Rudy Giuliani, and most recenting Preet Bharara, have touted themselves as the “Sheriff of Wall Street.”
magazine featured Bharara on a 2012 cover with the title “This Man is Busting Wall Street” for the hundreds of cases of insider trading suits he brought and his 85 case winning streak that ended after more than five years on the job.
If he didn’t win in the courtroom, Bharara still managed to ruin lives and careers. David Ganek, who founded now-defunct hedge fund Level Global, was never charged, but his firm didn’t survive the negative publicity from Bharara’s raid of his firm.
“This is a dangerous day for private citizens and a great day for ambitious, attention-seeking prosecutors who are now being rewarded with total immunity even when they lie and leak,” Ganek told the NY Post after shutting his firm down four months after the Southern District’s roust.
Leaking and lying is how justice was served by Bharara who was fired last May. In the case against gambler, businessman, and philanthropist, Billy Walters, Chief FBI agent for Wall Street Investigations, David Chaves, admitted that he jump-started a dormant case against Walters with leaks to the writes John Fund. “He also claimed that Bharara’s U.S. Attorney’s Office knew of the meeting between reporters and the senior FBI agents.”and , and, “in exchange he would ‘from time to time’ receive updates from one reporter on what she had learned about the Walters case,”
Just who were the victims of these supposed insider-trading crimes? Bharara nor any of his predecessors, were required to identify any victims.
In sentencing Mr. Walters, Judge U.S. District Judge P. Kevin Castel said “Billy Walters is a cheater and a criminal, and not a very clever one.”
However, only the thuggish legal system believes insider-trading is cheating. Economist Murray Rothbard, speaking to the Michigan Libertarian Party Convention in 1989, pointed out, “knowing more than the other guy is what free enterprise is, whether it’s the stock market or business in general. Knowing more than the other guy, being an entrepreneur and profiting from it.”
Insider-trading laws are a “direct assault on free markets, free enterprise, and private property rights,” Rothbard continued. “It’s a victimless crime, much like prostitution and drugs.”
Trading by insiders actually helps the economy, Rothbard said, “by syphoning assets to the most efficient people, who know more than the inefficient clucks.”
Unfortunately, the public doesn’t understand this arbitrary and capricious violation of rights, clamouring for even harsher punishment than what a U.S. attorney pursues. The average man on the street, Rothbard explains, believes Wall Streeters “should be locked up and throw away the key. They’re rich, who cares about their property rights.”
While insider trading sounds nefarious at worst and unfair, at a minimum. Philosopher Tibor Machan, wrote that what counts most for the morality of trade is respect for individual rights, not fairness. “Within the framework of such respect, insider trading is entirely unobjectionable. In addition, it can be perfectly ethically, commendable, to act based on such information: it is a matter of prudence and commercial savvy, both of which should be encouraged from those who work for a living.”
Economists recognize that allowing those with inside information to trade on it makes the market more efficient. With their trades, their information becomes reflected in a stock’s price. Nobel Prize winning economist Milton Friedman wrote, “You should want more insider trading, not less. You want to give the people most likely to have knowledge about deficiencies of the company to have the incentive to make the public aware of that.”
Robert Murphy PhD, shows how nonsensical insider-trading laws are:
Insider trading is morally right and economically sound. Yet government prosecutors uses these arbitrary laws to punish their enemies, boost their political careers, while throttling the basic rights of freedom of speech, rights to privacy and property.
Doug French [send him mail] writes from Las Vegas and is the author of three books; Early Speculative Bubbles and Increases in the Supply of Money, The Failure of Common Knowledge, and Walk Away: The Rise and Fall of the Home-Ownership Myth. He is the former president of the Ludwig von Mises Institute in Auburn, Alabama.
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