Category: Famous Cases

An insider is one who because of his status has access to price sensitive information which is not in public domain. James Surowiecki quoted, “If companies tell us more, Insider Trading will be worthless“. Quite precisely, as per Regulation 2 (ha) of the SEBI (Prohibition of Insider Trading) Regulations, 2015 (“PIT Regulations”) Unpublished Price Sensitive Information (“UPSI”) is not generally known to the public. But if known, may likely affect the price of the securities in the capital market.

The issue occurred in February 2007 when alerts were generated at the share market regarding dealing in shares of Indian Petrochemical Corporation Limited (“IPCL”) wherein it was observed that some entities purchased large quantities of IPCL shares before it announced its intention to declare interim dividend and considered to amalgamate with Reliance Industries Limited (“RIL”). In March 2016, SEBI by disposing of the charges of Insider Trading against Reliance Petroinvestments Ltd. (“RPIL”) added further lucidity to the understanding of who an insider may be.

Major Findings

  • RPIL was not an insider as there was no evidence to establish the access of UPSI.
  • RPIL is not a person “deemed to be connected”.
  • RIL did not exercise any voting power in RPIL directly.

Factual Matrix:

  • RPIL, which also held 46% stake in IPCL, took a commercial decision authorizing its Directors to invest INR 30 crores in the equity of IPCL. Further, it made additional investments of up to INR 100 Crore in the equity of IPCL.
  • On March 2, 2007, IPCL made an announcement to the stock exchanges for a declaration of Interim Dividend. It is pertinent to note that the order to purchase 98,280 shares of IPCL were placed before an announcement for a declaration of Interim Dividend was made.
  • On March 4, 2007, the proposal for merger of RIL and IPCL was discussed and on the next day, the steps for initiating the proposed merger were taken.
  • On March 10, 2007, a joint meeting of the boards of RIL and IPCL took place where a joint report was submitted setting out the recommended swap ratio was deliberated on. Subsequently, the Boards of RIL and IPCL approved the merger at their respective Board Meetings.
  • In view thereof, SEBI ordered an investigation in June 2007 regarding buying, dealing or selling in shares of IPCL in order to determine if any provisions of the SEBI Act or Rules and Regulations thereunder were violated.

RPIL’s Plea

  • RPIL submitted that the acquisition of shares in IPCL was a part of creeping acquisition of IPCL which was already underway. For better understanding of the subject matter, creeping acquisition is when any person holds 15% or more but less than 55% of shares or voting rights of a target company (IPCL in the present case), such person can acquire additional shares as would entitle him to exercise more than 5% of the voting rights in any financial year ending March 31 after making a public announcement to acquire at least additional 20% shares of target company from the shareholders.
  • RPIL further added that their investment of INR 30 Crore was a commercial decision as they had made a decision to commence creeping acquisition of IPCL shares. As the investment limit agreed to, was almost exhausted in June 2006. Thereafter, the share prices of IPCL had started to increase and eventually touched INR 325 per share, as a result of which shares were not purchased further.
  • Moreover, RPIL stated that the relevant trade did not take place abruptly, the shares in question were purchased on the basis of the share price of IPCL and in line with the commercial decision of RPIL.
  • RPIL pleaded that the past trading pattern of RPIL in the shares of IPCL should have been taken into consideration by the SEBI to ascertain whether the relevant trades were conducted on the basis of UPSI, as there was no proof incumbent upon it in order to sustain a charge of insider trading.

SEBI’s Observation

The two announcements made by IPCL were not Price Sensitive Information

According to the investigation report (“IR”), RPIL had made two announcements:

  • The order to purchase 98,280 shares of IPCL.
  • An announcement to the stock exchanges for a declaration of Interim Dividend.

The share price of IPCL more or less moved in sync with the movement in Sensex. Wherein, the scrips witnessed a substantial price rise subsequent to the announcement of amalgamation of IPCL with RIL.

RPIL is not an insider as defined in Regulation 2(e) of PIT Regulations

Regulation 2(e) of PIT Regulations stipulate that an insider is one who is or was connected with the company or is deemed to have been connected with the company and is reasonably expected to have access to UPSI in respect of securities of a company, or has had access to such UPSI.

RPIL is not a person ‘deemed to be connected’ within the meaning of Regulation 2(h) of the PIT Regulations

The Adjudicating Officer noted that it is imperative to establish that the same individual or body corporate holds more than a third of the voting rights with respect to both the Companies being examined for the purposes of this clause.

It was found that RIL did not exercise any voting power in RPIL directly, as is evident from the shareholding pattern of RPIL during the financial year 2006-07 and RIL as a single entity did not directly hold the requisite one-third shares in RPIL, as the shareholding of RPIL was cross-held by a number of subsidiaries. Moreover, one-third of the voting right in RPIL were exercised by Reliance Ventures Ltd. and not by RIL.

On the basis of the foregoing findings, the Adjudicating Officer disposed of the Adjudication Proceedings initiated against RPIL.

Key Takeaway

Trading by an insider in the shares of a Company is not in itself violation of law. In fact, trading by the Insiders (directors, employees, officers etc.) is a positive sign which should be encouraged by the Companies as it aligns its interest with those of the insiders. The law on the other hand prohibits trading by an insider in breach of fiduciary and duty of care and confidence towards the stock of a Company on the basis of non-public information to the exclusion of others. Therefore, in our view SEBI action of disposing of the insider trading charges against RPIL holds good. The reason being, PIT Regulations were put in place as a fresh tryout for those having perpetual control over UPSI. As suggested in the Sodhi Committee Report, it placed paramount thrust upon review of empirical evidence and feedback after the concept of trading plan was introduced. In view thereof, the present case at hand goes on to affirm the judicial intent of the PIT Regulation in spirit.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.



Insider trading was at its peak in the 1980s, when a series of mergers and takeovers meant that execs were privy to plenty of market-moving information. The king of insider trading was Ivan Boesky, who became an icon of the era. He ran with some other big financial players, including Michael Milken, who ultimately pleaded guilty to several other felonies, and managed to sidestep insider trading charges.

In 1986, Boesky advised an audience of UC Berkeley students, “You can be greedy and still feel good about yourself.” He made the cover of Time Magazine the same year, which is when the SEC ultimately accused him of trading information from a Drexel Burnham Lambert banker. Boesky settled out of court with a payment of $100 million dollars, then served 22 months in prison.

Ivan Boesky amassed a fortune of over $200 million in the 1980s before an insider trading scandal landed him with a $100 million fine and prison time.
Born in Detroit in 1937, Ivan Boesky studied law before becoming a successful financier and amassing a fortune worth over $200 million dollars. His involvement in a 1986 insider trading scandal, however, ruined his reputation and landed him with a $100 million dollar fine and a prison sentence. The character Gordon Gekko in Wall Street (1987) is rumored to be partially based on Boesky.

White Collar Criminal

Financier, born in Detroit, Michigan. The son of a Russian immigrant, he studied law and worked as a tax accountant before moving into securities analysis, forming his own firm in 1975. Boesky was credited with (or blamed for) pioneering the junk bond market, later a symbol of the excesses of the 1980s. He had become one of Wall Street’s most successful arbitrageurs when he admitted to insider trading charges in 1986. Fined $100 million, he served time in prison before being given parole for good behavior in 1990.

In 1966, Boesky and his wife moved to New York where he worked at several brokerage houses. In 1975, he opened his own firm, the Ivan F. Boesky & Company, with $700,000 (equivalent to $3.1 million in 2016) in seed money from his wife’s family with a business plan of speculating on corporate takeovers. Boesky’s firm grew from profits as well as buy-in investments from new partnerships. By 1986, Boesky had become an arbitrageur who had amassed a fortune of more than US$200 million by betting on corporate takeovers and the $136 million in proceeds from the sale of The Beverly Hills Hotel.Boesky was on the cover of Time magazine December 1, 1986.

In 1987, a group of partners sued Boesky over what they claimed were misleading partnership documents.The U.S. Securities and Exchange Commission investigated him for making investments based on tips received from corporate insiders. These stock acquisitions were sometimes brazen, with massive purchases occurring only a few days before a corporation announced a takeover.

Although insider trading of this kind was illegal, laws prohibiting it were rarely enforced until Boesky was prosecuted. Boesky cooperated with the SEC and informed on others, including the case against financier Michael Milken. As a result of a plea bargain, Boesky received a prison sentence of 3 12 years and was fined US$100 million. Although he was released after two years, he was permanently barred from working in securities. He served his sentence at Lompoc Federal Prison Camp near Vandenberg Air Force Base in California.

Boesky never recovered his reputation after doing his prison time, and paid hundreds of millions of dollars in fines and compensation for his Guinness share-trading fraud role and a number of separate insider dealing scams. Later, Boesky, who is Jewish, embraced his Judaism and even took classes at the Jewish Theological Seminary of America where he had been a major donor; however, in 1987, following the fallout from his financial scandal, The New York Times reported that “after Ivan F. Boesky had been fined $100 million in the insider-trading scandal, the Jewish Theological Seminary, acting at his request, took his name off its $20 million library.”

His involvement in criminal activities is recounted in the book Den of Thieves by James B. Stewart.

Another version of these events is recounted by Jonathan Guinness in his book Requiem for a Family Business which suggests the SEC granted him immunity from prosecution and allowed him to continue to insider trade for significant profit whilst wire tapping him to entrap others.

In a 2012 interview with the New York Times, a cousin of Boesky’s disclosed that he is living in La Jolla, California



As a compliance officer for Morgan Stanley, Randi Collotta worked with her husband to leak secrets to her friend Marc Jurman, a broker in Florida. The SEC accused the couple of taking $9,000 in kickbacks for trading, and they both admitted they were wrong.

Randi Collotta reportedly cried during the hearing while the couple faced the music. The couple agreed not to appeal the case so long as the sentence was under a certain amount of time.

Randi Collotta was a compliance lawyer at Morgan Stanley and had access to information on several pending transactions, including the 2004 deal by Penn National Gaming to buy Morgan Stanley client Argosy Gaming; the 2005 deal between Adobe Systems and client Macromedia; the 2005 deal by ProLogis to buy Morgan Stanley client Catellus Development; and the 2005 deal byUnitedHealth Group to acquire client PacifiCare Health Systems.

Manhattan prosecutors said Thursday that the Collottas provided material nonpublic information about upcoming deals involving Morgan Stanley clients to Marc Jurman, a Florida-based broker, who traded on the information. Jurman has already pleaded guilty in the case.

The SEC also has been probing whether employees at investment banks are tipping favored hedge fund clients with non-public details of upcoming transactions to keep or win more business.

In the arrest case Thursday, prosecutors said Morgan Stanley research analyst Jennifer Wang passed along material information she accessed at Morgan Stanley to her husband, Ruben Chen, and the two allegedly traded on the information in an account set up in Wang’s mother’s name. They are each charged with one count of conspiracy and three counts of securities fraud, facing a possible prison term of 65 years.

Last week, prosecutors arrested a former Credit Suisse investment banker and charged him with insider trading in several transactions for clients of the firm over the course of the last year, including trading in options of Houston energy firm TXU days before it agreed to a $32 billion buyout by Kohlberg Kravis Roberts and Texas Pacific Group.


Huang Guangyu, was the Chairman of GOME Group, which is the largest consumer electronics retailer in China. He had a net worth of US$1.7 billion as of 2005, according to Forbes magazine’s world’s richest people ranking

Guangyu was born an impoverished peasant from south China. He built a business selling cheap products from that region to cities in the North, and ultimately became the richest man in the country. He founded Gome, which became the largest consumer electronics company in China. In 2008, he and his wife were accused of insider trading in shares of Gome, among other things. He was sentenced to 14 years in jail, ending the bizarre story of the quick rise and quick fall of one of China’s most notable entrepreneurs.

On November 24, 2008 the Hong Kong Stock Exchange indefinitely halted trading in shares in GOME, amid reports of a police investigation of Huang Guang Yu, the company’s Chairman, Executive Director and Controlling Shareholder.Furthermore, Huang was reported to be charged with alleged stock market manipulation, on which police declined to comment, according to the state-run China Daily newspaper. He resigned from the post of Chairman on 16 January 2009.

A Chinese court sentenced Huang Guangyu to 14 years in prison, a punishment that is likely to be seen as a warning to the country’s business executives.

Even by the standards of China, Huang Guangyu’s rise was meteoric. He left school and his impoverished home at 16. By 36 he was a billionaire, the founder of a retailing giant and the wealthiest man in the country.

But the entrepreneur’s fall proved just as abrupt. At 41, he is beginning a 14-year prison sentence following his conviction for bribery, insider trading and illegal foreign exchange dealings.

His fortune was valued at between $2.7bn (£1.83bn) and $6bn. But in November 2008, shortly after he topped the Hurun rich list, he was detained and accused of manipulating stock prices. Today the state news agency Xinhua reported that a court in Beijing had jailed him, fined him 600m yuan (£60m) and confiscated property worth 200m yuan. His wife, Du Juan, was fined 200m yuan and sentenced to three and a half years for insider trading, Xinhua said.

Huang, also known as Wong Kwong Yu, was born into poverty in Chaoshan, southern China. He dropped out of school in 1985 and went into business with his elder brother with 4,000 yuan borrowed from friends and family.

Like many entrepreneurs at the time, they realised that cheap products from fast-developing southern China could be sold for considerably more in the north. It was not always smooth going. Huang once recalled trying to trade fabric, only to discover than no one liked the patterns he had chosen.

“The material and the issue of seasons made my head ache. I could not work it out. But electrical appliances are used by everyone, so there is not a big risk,” he said.One story, possibly apocryphal, involves them stacking empty boxes on their stall because they could not afford stock. If a customer wanted a product, they would rush off to buy it from another vendor.

Huang proved equally canny when he founded the Gome chain of home appliance retailers. “Prior to Huang and Gome, the idea of retail in China was to get your customer into the shop and sell them something as expensive as possible,” said Rupert Hoogewerf, whose Hurun rich list put Huang in the top spot in 2005, 2006 and 2008. “He turned that idea on its head and basically said: if you come to Gome, we will give you the best possible prices.”

Huang also invested in advertising and launched aggressive takeover bids so the chain could keep expanding.

China’s rapid urbanisation fuelled the boom. But doing business also required good connections.”The nature of retail in the early days was such that each region probably had a dominant state-owned retail competitor. When you are dealing with these sorts of competitors, it wouldn’t surprise me at all if you ended up getting into bed with some rather unpleasant characters,” Hoogewerf said.

Five senior police and tax officials were detained or questioned in relation to the investigation into Huang, state media have reported. But while leaders have stressed the need to tackle widespread corruption, observers say prosecutions reflect personal connections as much as the seriousness of alleged crimes.

“[The case] shocked a lot of the entrepreneurial class – the fact he was taken down, but also the fact he allowed himself to be. It’s one thing to be ambitious and have a good business but another not to have put in place protective measures – cultivating government relations that would be able to avoid things getting to the courts. He has to have done something pretty bad or upset someone pretty important,” said Hoogewerf.

“The water is pretty murky.”

What prompted the investigation is unclear, but some believe that attempts to cultivate friends in high places made him a target. “If you cosy up to a particular politician, by default that politician’s enemies will be yours,” Hoogewerf said.

“Huang’s case is not unique; it gained more attention because he was the richest person in China,” said Liu Shanying, an analyst at the Institute of Political Science in the Chinese Academy of Social Sciences. “If you want to do business, it is hard for you to make it big without a good relationship with government. Of course, [that] is not a bad thing….but during the process of building up a good relationship, it is easy for the owner of the power and the owner of the business to exchange interests privately.”

Liu added that people had been expecting more senior officials to be named in connection with the case.Even if Huang serves his full sentence he will be only 55 when he is released. And while he resigned as chairman of Gome following his detention, he still holds a third of its shares. And last week three executives from Bain Capital – an American private equity firm that invested in the company last summer – were ousted from the board by shareholders affiliated with Huang. The executives were subsequently reinstalled. But it looks as if the tycoon’s remarkable story may contain a few more chapters.




Litigation Release No. 20115 / May 14, 2007

Securities and Exchange Commission v. Christopher M. Balkenhol, Case No. C-07-2537 JCS (N.D. Cal. filed May 14, 2007)

SEC Charges Former Oracle Vice President with Illegal Insider Trading in Stocks of Oracle Acquisiton Targets

Trader Misused Confidential Information Gleaned From Spouse, Who Was Lead Executive Assistant to Oracle’s CEO and Co-Presidents

The Securities and Exchange Commission today filed insider trading charges against a former Oracle Corporation vice president who allegedly traded on confidential information about Oracle acquisition targets gleaned from his spouse, who was also employed by Oracle. The Commission alleges that Christopher Balkenhol, 40, of San Mateo California, learned about secret merger negotiations from his wife, who worked at Oracle as the lead executive assistant to Oracle’s CEO and two co-Presidents. Without admitting or denying the Commission’s allegations, Balkenhol agreed to settle the action against him, paying a total of approximately $198,000-including a penalty of nearly $100,000.

The Commission’s complaint, which was filed in the United States District Court for the Northern District of California, alleges that Balkenhol traded in a series of Oracle acquisition targets during 2004 and 2005. Balkenhol allegedly learned about the planned acquisitions from his wife, who had access to the schedules of Oracle’s three top executives and was aware of significant merger-related meetings. The Commission does not allege that Balkenhol’s wife knew about Balkenhol’s illicit trades. Rather, the complaint alleges that Balkenhol breached a duty not to misuse confidences gleaned from his wife for his own gain.

The complaint alleges that Balkenhol engaged in pattern of insider trading by purchasing stock in Oracle acquisition targets before any public announcement of Oracle’s interest. Balkenhol’s first profitable trade came on March 1, 2005, when he invested $85,000 in Minneapolis-based Retek Inc. the day after Oracle executives began considering a tender offer for Retek. When Oracle announced the tender offer the following week, Retek’s stock price jumped and Balkenhol sold the shares for approximately $15,000 in alleged unlawful profits.

Balkenhol allegedly continued his pattern of insider trading with a series of stock purchases in another acquisition target, Siebel Systems, Inc., during Oracle’s negotiations to acquire the company in 2005. On June 9, 2005, the day after Oracle’s two co-Presidents secretly met with Siebel’s CEO to initiate merger discussions, Balkenhol bought over $270,000 worth of Siebel’s stock. Over the next three months, Balkenhol made three additional purchases of Siebel stock, each following a critical advance in the confidential negotiations. Again, Balkenhol’s wife had access to detailed inside information relating to each such advance. From June to September, Balkenhol ultimately purchased over 50,000 shares of Siebel stock for a total of approximately $448,000. Immediately after Oracle’s September 12, 2005 announcement of its acquisition of Siebel, Balkenhol sold his entire position for approximately $82,000 in unlawful profits.

The total of approximately $198,000 Balkenhol agreed to pay in settlement of the Commission’s action includes $97,282 in disgorgement, $4,115 in prejudgment interest and a $97,282 civil penalty. Balkenhol has also agreed to a permanent injunction from further violations of Sections 10(b) and 14(e) of the Securities and Exchange Act of 1934, and Rules 10b-5 and 14e-3 thereunder.

The Commission acknowledges the assistance of the National Association of Securities Dealers (NASD) in this matter.

SEC Complaint in this matter

U.S. Securities and Exchange Commission

Litigation Release No. 21536 / May 27, 2010

SEC v. Yonni Sebbag and Bonnie Jean Hoxie, Civil Action No. 10-CV-4241 (SDNY) (NRB) (May 26, 2010)

SEC Charges Disney Employee and Boyfriend in Brazen Insider Trading Scheme

On May 26, 2010, the Securities and Exchange Commission (SEC) filed a complaint in the United States District Court for the Southern District of New York charging a Walt Disney Company employee and her boyfriend in a scheme to sell confidential information about Disney’s quarterly earnings to hedge funds.

The SEC’s complaint alleges that Bonnie Jean Hoxie — an administrative assistant to a high-level Disney executive — and her boyfriend Yonni Sebbag sent anonymous letters in March 2010 to more than 20 hedge funds in the U.S. and Europe, offering to provide pre-release results of Disney’s second quarter 2010 earnings in exchange for a fee. Some hedge funds alerted the SEC, which immediately worked with the U.S. Attorney’s Office for the Southern District of New York and the Federal Bureau of Investigation (FBI) to investigate. The FBI set up an undercover operation and made several contacts with Sebbag who offered to sell the information, in one instance for $15,000 and in another for half the expected trading profits.

In early May, Hoxie obtained confidential information concerning Disney’s quarterly earnings and provided it to Sebbag, who in turn sold it to an FBI agent posing as an investment manager.

According to the SEC’s complaint, Hoxie had regular access to confidential information concerning Disney’s financial performance and operating plans. Hoxie and Sebbag orchestrated a scheme to sell information to hedge funds to be used for purposes of insider trading.

The SEC also alleges that Sebbag told FBI agents posing as investment managers that he wanted to establish a business relationship to share confidential information on a regular basis, and wanted to be compensated. Sebbag also expressed his understanding of the risks involved and his desire to avoid being caught. Among excerpts of Sebbag’s e-mails to undercover agents (includes original spelling and punctuation):

“First of all, i am not a fed, I have no way to prove it at this point but i am not asking you to disclose your identity not i will disclose mine. It is up to you to determine if this is worth the risk as i did. I work for Disney, that is all i can tell you.”

“I can deliver 3 to 4 days before release. I will email you the report as soon as i have it and you will wire transfer the money to my account after you get ahold of it. I am asking you to make me an offer based on the capital gains from the trade and the risk i am taking delivering this information to you? Also, i am looking to build a strong business relationship with you for future quarters and information.”

“I dont think we will get caught if we stay discret and careful. You can count on my discretion as i am counting on yours…”

“… $15k sounds great and $30k even better as i hope you will make a killing from Q2 earnings. I promise i will keep you informed of any unanticipated event, i keep my ears wide open here.”

The SEC’s complaint further alleges that two days before Disney’s earnings announcement, Sebbag e-mailed the undercover agents a 107-page confidential document that contained a series of talking points for Disney executives during an upcoming quarterly earnings conference call. It contained very detailed information about the quarterly performance and future prospects of Disney’s various business segments. The SEC also alleges that Hoxie learned that Disney’s Earnings Per Share (EPS) for the quarter and provided that information to Sebbag, who in turn provided it to an undercover agent approximately two hours before its public release.

According to the SEC’s complaint, Sebbag made arrangements to meet the undercover agents in person so he could collect his payment. At a May 14 meeting in New York, Sebbag told the agents he wanted “to make a lot of money” through the arrangement and asked for their advice on how to open up an off-shore account to deposit his proceeds from the scheme, stating that he didn’t “want to go to jail.” Sebbag left the meeting with an envelope containing $15,000 in cash, and he subsequently made arrangements to meet with them again in California to continue building the illicit relationship. The FBI arrested Sebbag and Hoxie on May 26, 2010.

By offering to sell and selling material non-public information to be used for the purposes of insider trading, Sebbag and Hoxie engaged in acts or practices that constitute violations of the anti-fraud provisions of the federal securities laws. The SEC’s complaint seeks an order providing for permanent injunctive relief against Sebbag and Hoxie pursuant to Section 21(d)(1) of the Securities Exchange Act of 1934, permanently enjoining each defendant from violating Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.

The Commission thanks the FBI and the U.S. Attorney’s Office for the Southern District of New York for their assistance in this matter.

William Duer (March 18, 1743 – May 7, 1799) was a British-born American lawyer, developer, and speculator from New York City. A Federalist, Duer wrote in support of ratifying the United States Constitution as “Philo-Publius.” He had earlier served in the Continental Congress and the convention that framed the New York Constitution. In 1778, he signed the United States Articles of Confederation.

William Duer, a British-born speculator, was the first to use inside information to game the markets. Duer was appointed by Alexander Hamilton as the assistant secretary of the Treasury. He quit the job, but used his inside intel to speculate on bank stocks. Then, in 1792, an audit of his treasury books turned up $238,000 of missing money. The government sued him for the sum, taking down Duer’s financial empire, and much of the New York Stock Exchange, causing the country’s first market crash.

Duer was the son of a very successful West Indian planter. Educated at Eton, Duer settled in America in 1773, became sympathetic with the colonists grievances against Britain and, at the same time, he quickly began to hold positions of importance in New York society. Duer regaled his friends and associates at dinner at his home on Broadway, not far from Wall Street, where Trinity Church is still located. At his wedding to Catherine Alexander (“Lady Kitty”), the bride was given away by George Washington.

Duer became a member of the Continental Congress, a New York judge, and a signer of the Articles of Confederation. He was also secretary to the Board of the Treasury (appointed by Alexander Hamilton), a position that made him privy to the inner workings of American finance in the late 1780s. Hamilton, our first Treasury Secretary, was honest and never profited from his government position. Duer, on the other hand, saw nothing wrong with using information he was privy to to try and make a fast buck.

The Duer/Hamilton relationship was to have its trying moments. Duer had been instrumental in helping Hamilton establish the Bank of New York. Hamilton would attempt to bail Duer out of some major problems, later.

Duer had made his fortune in land and speculating on the Revolutionary debt. In 1791, Duer resigned his Treasury position and entered into a partnership with Alexander Macomb, one of New York’s richest and most prominent citizens. They agreed to combine Macomb’s money and Duer’s speculative talents and insider connections with the Treasury Department. Duer began speculating on Bank of New York stock when there were rumors that it was to be bought by the Bank of the U.S. If true, the stock was sure to rise. But while long in the market with Macomb, he was short (betting the stock would go down) Bank of New York in his own account. If the merger failed, Duer and Macomb would lose, but Duer, on his own, would make a fortune. Since his agreement with Macomb called for using Macomb’s money, not his own, all Duer had to lose by double-crossing his partner was honor, a sacrifice he seemed perfectly willing to make.

Hamilton, unaware of Duer’s duplicity, but appalled at his speculative activities wrote on March 2, 1792. “‘Tis time, there must be a line of separation between honest Men & knaves, between respectable Stockholders and dealers in the funds, and mere unprincipled Gamblers.”

Duer became the center of attention and many were only too anxious to lend him money in hopes of getting in on the bandwagon. He began to buy other bank stocks for future delivery, betting that rising prices would enable him to pay for them when the time came.

But at the same time there were others who had an interest in seeing that prices fell, namely the Livingston clan, one of the richest families in the New York area. To ensure this, they began to withdraw gold and silver from their bank deposits, contracting the local money supply and forcing banks to call in loans, thus instituting a credit squeeze. Interest rates soared to as much as one percent a day.

This was ruinous for Duer and others who had borrowed to speculate. Desperate, he tried to borrow more to cover his obligations (All-Tech and Momentum Securities weren’t around then to help him out), but there was none to be had.

With his fall, panic ensued. Immediately, Duer was thrown in debtors prison and Macomb ended up there as well. Alexander Hamilton, however, rode to the rescue and ensured that the country as a whole didn’t suffer. He ordered the Treasury to purchase several hundred thousand dollars worth of federal securities to support the market, and he urged banks not to call in loans. Soon, calm quickly returned. According to historian John Steele Gordon, “It would be 195 years, until the great crash of 1987, before the federal government once again moved decisively to prevent a panic.”

Because Duer often traded on insider information, he earned the distinction of being the first to do so. Within a month of his collapse and the crash that followed, the auctioneers and dealers resolved to move themselves in from the street and the coffeehouses and to find a more permanent location. It became apparent that the marketplace needed a central location so that dealings could be better controlled and better records kept. In May 1792, dealers and auctioneers entered the Buttonwood Agreement. Meeting under a buttonwood tree, today the location of 68 Wall Street, the traders agreed to establish a formal exchange for the buying and selling of shares and loans (bonds).

And what became of Duer? Hamilton tried to intervene on his behalf but was only able to obtain a short reprieve. Duer soon ended up back in prison and he died there in 1799.

“Wall Street: A History,” by Charles Geisst
“The Great Crash of 1792,” an article in the May/June issue of American Heritage magazine, written by John Steele Gordon]”

In December 1790, Hamilton called for the creation of the Bank of the United States, and in February 1791 President George Washington signed the charter allowing it to open. During the initial public offering for the Bank of the United States, investors paid $25 for a stock, called a scrip, and were required to make three additional payments in six-month intervals totaling $375. These payments were to be 25% in specie and 75% in US debt securities. Demand for stock in the newly formed Bank of the United States was significant, and prices for scrips increased dramatically for the first several weeks, reaching $280 in New York and reportedly over $300 in Philadelphia by mid-August.The market shifts were not sustainable, and within days prices began to fall rapidly. Hamilton stepped in by working with William Seton, the cashier of the Bank of New York, to authorize the purchase of $150,000 of public debt in New York to be covered by government revenues. By September 12, prices had recovered, and Hamilton’s intervention had not only stabilized the market but also laid the groundwork for his cooperation with the Bank of New York, which would later be crucial in ending the Panic of 1792.

In late December 1791, the price of securities began to increase once again, and the eventual crash in March 1792 caused many investors to panic and withdraw their money from the Bank of the United States.One of the primary causes of the sudden run on the bank was the failure of a scheme created by William Duer, Alexander Macomb and other bankers in the winter of 1791. Duer and Macomb’s plan was to use large loans to gain control of the US debt securities market because other investors needed those securities to make payments on stocks in the Bank of the United States. Additionally, Duer and Macomb were able to create their own credit by endorsing one another’s notes, and did so in hopes of creating a new bank in New York to overtake the existing Bank of New York.On March 9, 1792 Duer stopped making payments to his creditors and simultaneously faced a lawsuit for actions he had taken as Secretary of the Treasury Board in the 1780s. As Duer and Macomb defaulted on their contracts and found themselves in prison, the price of securities fell more than 20%, all in the matter of weeks.

The Panic of 1792 was further instigated by the sudden restriction of previously overextended credit by the Bank of the United States. When the Bank of the United States first began accepting deposits and making discounts in December 1791, it expanded credit extensively. By January 31, 1792 monetary liabilities exceeded $2.17 million, and discounts reached $2.68 million – a very large sum at the time. Speculators took advantage of this new credit source, using it to make withdrawals from the Bank of New York, which placed undue stress on the bank’s reserves. From December 29 to March 9, cash reserves for the Bank of the United States decreased by 34%, prompting the bank to not renew nearly 25% of its outstanding 30-day loans. In order to pay off these loans, many borrowers were forced to sell securities that they had purchased, which caused prices to fall sharply.


Over the course of a few evenings in 2013, the heads of trading from major investment banks got together for some poker nights. It was a bit of relaxation from their hectic schedules. But what their seemingly-innocent hands of Texas Hold’em revealed was a story of traders gone rogue.

After every poker night, there would be a big spike in the profit and loss (P&L) statement for the traders involved because they would be colluding and tipping each other off about trades.

But it wasn’t until 2015 that this was discovered when the companies were under investigation by authorities. A law firm brought in to look into the suspicious activity was handed piles of communications documents, but it was artificial intelligence (AI) software that managed to find the link between poker nights and the collusion that had taken place.

It can be hard for investigators to draw conclusions from the mass of documents they have to wade through. How can you connect a private poker night to illegal trading? Behavox is a U.K. start-up that uncovered the wrongdoing. Its software can link seemingly unrelated things to help compliance staff within financial organizations find rogue traders, by recognizing behavior that strays from the norm.

“A poker night would have never got flagged as you didn’t know you should be looking at it as something suspicious,” Erkin Adylov, chief executive of Behavox, told CNBC in an interview.

“The relationship between the people involved is the reason we flagged it. The three people who kept playing poker were very close and seem important, i.e. there seemed like there was a business relation. The fact that these guys spent a ton of time playing poker when they were clearly busy was the first thing we highlighted. When you analyzed P&L and overlaid one data set with another, there was a big spike in P&L after the poker night. When we highlighted, the compliance guys were able to connect the dots and found it was a case of collusion.”

Behavox uses machine learning – where its algorithm continues to improve with more data – to analyze employees within an organization. It allows the software to build up a picture of workers and then flag anything that appears out of character. It could be something as granular as using an obscene word in a message to a colleague, to the way you speak to people on the trading floor. The current problem is that compliance officers and investigators could have to sift through millions of documents of message logs or financial statements and not necessarily draw a link between them.

The start-up is trying to build up a database of past misconduct in order to help financial institutions deal with bad behavior, something that can be challenging because companies don’t want to give others an insight into wrongdoings within.

“One of our biggest problems when we were starting out was the fact that you can’t build software unless somebody gives you the data set. And nobody is going to give you the data set until you actually have the software, so it’s a chicken and egg situation,” Adylov said.

However, law firms brought in to investigate are “playing defense” and are happy to give data to Behavox to help, the entrepreneur said.

It’s a solution that should be welcome to many large businesses given that the banking sector has been hit with billions of dollars of fines over the last few years with the whole industry in the crosshairs of regulators. In the U.K., senior managers could face jail time if their employees make bad decisions which leads to the failure of a bank. Behavox is hoping it can win clients by explaining the need to know what’s going on within a business.

So far, hedge fund Marshall Wace and interdealer broker TP ICAP are using the software. Adylov said Behavox has 15 clients in total and is hoping that number will “escalate dramatically” this year. Last year, Behavox raised $3 million from a round of funding from London-based venture capital firm Hoxton Ventures and Chicago’s Promus Ventures. Adylov would not reveal the company’s valuation but said it is already getting takeover offers “north of $100 million”, after being in business for just two-and-a-half years.

The poker story is just one of many interesting examples Behavox’s software had found. Another involved traders using menu items from popular food chain Nando’s in the U.K. to hide illegal trading activity.

A potential challenge to the business could come from the U.S. where President Donald Trump has talked about deregulation of the banking sector including a repeal of the Dodd-Frank law which came into effect to stop another financial crisis. But Adylov said Trump is unlikely to do anything that would make insider trading legal for example, but instead would slow down the introduction of regulation so banks could catch up. In this instance, companies would still need Behavox, the founder said.



Albert Henry Wiggin (February 21, 1868 – May 21, 1951) was an American banker. General Electric’s Owen D. Young once described him as “the most colorful and attractive figure in the commercial banking world” of his time.

Wiggin went to New York in June 1899 to become vice president of the prestigious National Park Bank. He also was vice president of two small Manhattan institutions, the Mutual Bank and the Mount Morris Bank. By his early thirties, Wiggin was already a vice president at National Park Bank in New York City. He gained recognition as one of the up-and-coming in the Wall Street banking community for his role in organizing Bankers Trust. In 1904 the quiet, reserved Wiggin became the youngest ever vice president at the prestigious Chase National Bank and in 1911 succeeded Henry W. Cannon as president.

Wiggin had an integral role in creating commercial and industrial accounts that ultimately gained Chase’s revenue. He also invited other important businessmen from other big companies to see if they wanted to become Chase directors. Chase’s deposits had an immediate effect as they soared from $91 million at the end of 1910 to $2.074 billion twenty years later. Capital and surplus soon followed by increasing from $13 million to $358 million. The amount of Shareholders Chase had gone from twenty in 1904; to 2,189 in 1921; to 50,510 in 1929, and even reached at 89,000 by 1933.

Under Albert Wiggin, Chase National Bank entered a period of rapid growth, spurred by the acquisition of several New York financial institutions and the creation of a securities division that made his bank second only to National City Bank. In 1917, Wiggin was made Chairman of the bank and served on the board of directors of more than fifty major American corporations. He was responsible for bringing in members of the Rockefeller family as investors in Chase National Bank. By 1918, Wiggin made Chase the fourth largest bank in the United States.

Wiggin became an important player on the world financial stage and in 1923 opened a Chase National Bank representative office in London, England which began lending directly to governments and businesses throughout Europe. Wiggin also developed other foreign banking corporations in places such as Paris, Rome, Panama City and Berlin.

Wiggin was a staunch proponent of Free trade, albeit under certain restrictions. He was a signatory to the 1926 international round robin declaration by over 100 of the world’s most powerful financiers that called upon European nations to remove their tariff barriers to international trade.

On Black Thursday of the Wall Street Crash of 1929, Albert Wiggin joined with other senior Wall Street bankers in an attempt to save the collapsing stock market. On behalf of Chase National Bank, Wiggin, along with other bankers, committed substantial funds for an investment pool. They had Richard Whitney, vice president of the New York Stock Exchange, go onto the floor of the Exchange and with great fanfare purchase large blocks of shares in major U.S. corporations at prices above the current market. The action halted the slide that day and returned stability to the market. While the market slide continued on Monday, Wiggin was lauded as a hero for his actions.

However, what came out in the Pecora Commission investigation into the Wall Street crash, was that beginning in September 1929, Wiggin had begun selling short his personal shares in Chase National Bank at the same time he was committing his bank’s money to buying. He shorted over 42,000 shares, earning him over $4 million. His earning were tax-free since he used a Canadian shell company to buy the stocks. Wiggin was not alone, other executives in powerful positions did the same thing. A member of the committee counsel from the Senate Banking Committee named Ferdinand Pecora said of Wiggins, “In the entire investigation, it is doubtful if there was another instance of a corporate executive who so thoroughly and successfully used his official and fiduciary position for private profit” (Pecora, p. 161). As a result of all the controversy, the Wiggin Provision was promptly named after him which prevented company directors from selling short on their own stocks and making a profit from their own company’s demise.

As head of one of America’s most important banks, Wiggin was consulted by the Hoover Administration for suggestions on how to deal with the Great Depression. Wiggin opposed the Smoot-Hawley Tariff Act of 1930 and according to the Ludwig von Mises Institute, “One of the best counsels on the depression was set forth in an annual report by Albert H. Wiggin, chairman of the board of the Chase National Bank, in January, 1931.” In 1949 Wiggin sold his 24 percent interest in American Express, stipulating that it would not be broken up or wind up owned by Chase. Although Wiggin never did anything illegal, he eventually retired under pressure from the bank after 30 plus years of successful banking.



In December 2001, the Food and Drug Administration (FDA) announced that it was rejecting ImClone’s new cancer drug, Erbitux. As the drug represented a major portion of ImClone’s pipeline, the company’s stock took a sharp dive.

Many pharmaceutical investors were hurt by the drop, but the family and friends of CEO Samuel Waksal were, oddly enough, not among them. Among those with a preternatural knack for guessing the FDA’s decision days before the announcement was homemaking guru Martha Stewart. She sold 4,000 shares when the stock was still trading in the high $50s and collected nearly $250,000 on the sale. The stock would plummet to just over $10 in the following months.

ImClone’s stock price dropped sharply at the end of 2001 when its drug Erbitux, an experimental monoclonal antibody, failed to get the expected Food and Drug Administration (FDA) approval. It was later revealed by the U.S. Securities and Exchange Commission that prior to the announcement (after the close of trading on December 28) of the FDA’s decision, numerous executives sold their stock.ImClone’s founder, Samuel D. Waksal, was arrested in 2002 on insider trading charges for instructing friends and family to sell their stock, and attempting to sell his own. His daughter, Aliza Waksal, sold $2.5 million in shares on December 27. His father, Jack Waksal, sold $8.1 million in shares over the 27th and 28th; company executives followed suit. John B. Landes, the general counsel, sold $2.5 million in shares on December 6. Ronald A. Martell, the vice president for marketing and sales, sold $2.1 million in shares on December 11. Four other executives sold shares in the following weeks as well. Later, founder Waksal pleaded guilty to various charges, including securities fraud, and on June 10, 2003, was sentenced to seven years and three months in prison.

Martha Stewart, the founder of Martha Stewart Living Omnimedia, also became embroiled in the scandal after it emerged that her broker, Peter Bacanovic, tipped her off that ImClone was about to drop. In response, Stewart sold about $230,000 in ImClone shares on December 27, 2001, a day before the announcement of the FDA decision. Stewart’s involvement would have never come to light had Doug Faneuil, Bacanovic’s assistant, not disclosed it to investigators. Although Stewart maintained her innocence, she was found guilty and sentenced on July 16, 2004 to five months in prison, five months of home confinement, and two years probation for lying about a stock sale, conspiracy, and obstruction of justice.

On July 8, a motion for a new trial was denied and sentencing was set for July 16. Martha Stewart and Peter Bacanovic were each sentenced to five months in prison, five months of home confinement, and two years probation for lying about a stock sale, conspiracy, and obstruction of justice. Stewart was ordered to pay a $30,000 fine, while Bacanovic was fined $4,000. The judge stayed the sentence while they prepared their appeals.

On September 15, 2004, accompanied by her lawyers and members of the board of directors of Martha Stewart Living Omnimedia, Stewart held a press conference to announce her decision to begin serving her sentence as soon as possible while vowing to continue ahead with her appeal.The event was featured live on national television. On September 21, she was ordered by US District Judge Miriam Cedarbaum to surrender by October 8 to begin her sentence. On September 29, the Federal Bureau of Prisons announced that Stewart would serve her sentence at the federal prison camp near Alderson, West Virginia, denying her request to serve it at the federal prison in Danbury, Connecticut. She reported to Alderson Federal Prison Camp early in the morning on October 8.Alderson is a minimum security prison, the lowest level of security in the Bureau of Prisons. There are no fences, and inmates are generally free to walk around the compound unescorted. Stewart, who said her prison nickname was “M. Diddy”, reportedly got along quite well with her fellow inmates and kept herself busy with assigned cleaning tasks. She was released on March 4, 2005 at 12:30 AM.

After being released from Alderson, Stewart began to serve her home confinement at her estate in Bedford, New York. During the confinement she was permitted to leave her property for up to 48 hours a week to conduct business, but was required to wear an electronic ankle monitor to monitor her location at all times. On January 6, 2006, a Federal Appeals court denied Stewart’s appeal and upheld the jury’s verdict.

On May 21, 2004, Larry Stewart (no relation), a United States Secret Service lab director who testified for the government against Martha Stewart, was charged with two counts of perjury. Stock in Martha Stewart Living Omnimedia jumped as much as 23 percent on the news. Larry Stewart was an expert witness about the ink on a broker’s worksheet, testifying that the note about selling ImClone shares when it dropped below $60 was different from the rest of the ink on the document. The charges arose when Susan Fortunato, a Secret Service co-worker, complained that she had in fact done the analysis and that it had never been examined by Stewart. Although the jury at the perjury trial felt that Larry Stewart had taken unfair credit for the work done, it did not amount to perjury and he was found not guilty on October 5, 2004. The jury had trouble believing Fortunato, feeling that she had an axe to grind with Stewart.

In October 2005, Stewart was informed that due to her status as a convicted felon in the United States, she was inadmissible for entry into Canada under the Immigration and Refugee Protection Act. Stewart had planned to attend the Windsor Pumpkin Regatta in Nova Scotia. Within two days of the story’s breaking, then Canadian Minister of Citizenship and Immigration Joe Volpe granted Stewart a temporary resident permit, thereby allowing her to temporarily enter Canada.However, bad weather prevented her from attending.

In June, 2008, the UK Border Agency, operational since 1 April 2008 with new rules to safeguard British borders, refused to grant her a visa to enter Great Britain, because of her criminal conviction for obstructing justice. She had been planning to speak at the Royal Academy on fashion and leisure industry matters.

In August, 2006, the Securities and Exchange Commission announced that it had agreed to settle the related civil case against Stewart. Under the settlement, Stewart agreed to a five-year bar from serving as a director, or as the CEO, CFO (or other officer roles in which she would be responsible for preparing, auditing, or disclosing financial results), of any public company. She also agreed to pay the maximum penalty of three times the losses she avoided, or $195,000. Bacanovic agreed to pay penalties totaling about $75,000, and was barred associating with a broker, dealer or investment adviser.



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