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.”
Time 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 Wall Street Journal and New York Times,
and, “in exchange he would ‘from time to time’ receive updates from one
reporter on what she had learned about the Walters case,” 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.”
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:
To
drive home just how arbitrary and non-criminal “insider trading” really is,
consider this scenario: Suppose someone had been planning on buying shares of
Acme, but just before doing so, he caught wind of a bad earnings report. In
light of the new information (which was not yet public), the person refrained
from his intended purchase. Should this person be prosecuted for insider
non-trading?
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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