Some big names and corporations hit the headlines for all the wrong reasons—insider trading scandals. These people played dirty in the Stock market, using secret information to get rich quickly while leaving others in the dust. One that is always top of mind for me is Martha Stewart, the queen of homemaking, who went to jail for Insider trading.
I couldn't imagine how Martha would fare in federal prison, but she served her time and made the most of it with Snoop Dogg collaborations afterward. Most of these sneaky traders end up facing hefty fines and jail time. Here's a glimpse into some of the biggest insider trading scandals that caused a stir.
Martha Stewart and Imclone
I remember growing up with Martha Stewart as the pinnacle of upper-class, wholesome Americana. So when she eventually went to prison for insider trading, it shocked me, along with the rest of the country. Martha Stewart got caught up in a big insider trading mess in 2001 with ImClone Systems.
She sold 3,928 ImClone shares right before their value tanked, and she was accused of getting the info from her broker, Peter Bacanovic. Even though she dodged losing a lot of money, her reputation took a big hit. She settled with the SEC, paying almost $200,000 to avoid more legal trouble. She spent five months in prison, five months of house arrest, and two years of probation. The scandal really messed up Stewart's public image and business empire for a while until she made a big comeback years later.
Levine, Boesky, and Drexel Burnham Lambert Caught in One Huge Insider Trading Scandal
This scandal exposed a rotten core in the financial world in the 1980s. Dennis Levine, a big shot at the investment banking firm Drexel, got caught using secret information to make quick money in the stock market. He pulled in Ivan Boesky, claiming Boesky paid Drexel big bucks for inside tips from star banker Michael Milken. Boesky got hit with a $100 million fine and got the boot from the securities scene. Drexel faced lawsuits and probes and eventually went belly up in 1990.
Columnist R. Foster Winans
In the 1980s, Wall Street was shaken by a scandal involving The Wall Street Journal, the big-shot financial newspaper. R. Foster Winans, a columnist with secret info, spilled the beans ahead of time to a stockbroker named Peter N. Brant.
They used this insider info to trade stocks and bagged over $900,000 in illegal profits. This shady move damaged people's trust in financial news, and rules on insider trading got tougher. Winans ended up with an 18-month prison sentence in 1985, later cut down to a year and a day.
Art Samberg's Illegal Microsoft Trades
In 2001, Art Samberg, the boss at Pequot Capital Management Inc., got caught up in some insider trading drama with Microsoft. The Securities and Exchange Commission (SEC) in The United States accused Samberg and his company of making $14.8 million using secret info from a Microsoft employee named David Zilkha.
Zilkha revealed secret news about Microsoft, and Samberg's crew apparently cashed in on the stock market. By 2010, Samberg and Pequot had to pay nearly $28 million to settle the SEC's six-year probe into their insider trading moves.
Sac Employees Charged With Insider Trading
In 2010, the SEC started sniffing around Steven A. Cohen's SAC Capital Advisors hedge fund for insider trading. By 2012, they hit SAC Capital with a massive $1.8 billion fine—the biggest ever for insider trading back then. Some SAC employees were charged and convicted, including portfolio manager Mathew Martoma, who got nine years in prison for insider trading involving pharmaceutical companies.
Albert H. Wiggin and His Hidden Bet
In 1929, Wiggin, the boss of Chase National Bank (now part of JPMorgan Chase), did something sneaky. He bet against his own bank by selling over 42,000 shares of his own bank's stock, making over $4 million when the market crashed. He used a clever trick with a shell company to avoid paying taxes on his big profit.
This shady move filled Wiggin's pockets and shook people's confidence in the financial system, making the Great Depression even worse. I can imagine how betrayed the public felt when people faced so much financial insecurity while this millionaire was getting richer!
Qwest Ex-Ceo Joseph Nacchio
In 2005, Joseph Nacchio, the ex-CEO of Qwest Communications, faced insider trading charges for selling millions in Qwest stock while having inside info on the company's financial health. By 2007, he was convicted of 19 insider trading counts, but a federal appeals court overturned the conviction in March 2008 due to technical issues with jury instructions.
In 2011, the SEC settled a civil insider trading case with Nacchio without him admitting guilt. Regardless, Qwest investors felt betrayed—how could they trust any company when the CEO himself seemed willing to mislead them?
Murakami Got Insider Info From Livedoor
One of the larger insider trading scandals in Japan was when the investment group Murakami Fund got the inside scoop that the internet fund company Livedoor planned to buy Nippon Broadcasting System (NBS). Allegedly, the fund's boss, Murakami, got the heads-up from Livedoor's President Horie before the plan got official approval.
This gave them an unfair advantage to grab NBS shares at a lower price before they shot up with Livedoor's involvement. The scandal shook up the Japanese stock market, and Murakami was arrested in June 2006. The Murakami Fund faced a heap of legal and reputation troubles.
Senior Bankers' Brazen Insider Trading Scheme
The SEC dubbed this case as a brazen insider trading scheme for a reason. Mitchel Guttenberg from the Union Bank of Switzerland (UBS), Randi Collotta from Morgan Stanley, Erik Franklin, and David Tavdy from Bear Stearns faced charges for making illegal gains through early tips on mergers and stock recommendations from UBS research analysts.
These tips were allegedly shared with hedge funds and traders, giving them a heads-up on stock changes and mergers before the public knew. This lets the funds make timely trades and score big profits. Franklin and Tavdy were accused of making over $4 million from insider trading.
Raj Rajaratnam and the Galleon Mess
Raj Rajaratnam, the big shot behind the Galleon Group, and his crew played dirty by using secret insider info to get an upper hand in the stock market. They snagged non-public details about different companies to make money-spinning trades in their stocks before the info went public.
The illegal scheme raked in over $60 million, making it the biggest hedge fund insider trading case in U.S. history back then. Rajaratnam got nailed with 14 counts of securities fraud and conspiracy in 2011, landing him an 11-year prison sentence. The Galleon Group shut down, and others involved faced legal heat too.
Wyly Brothers and the Alleged $550 Million Scheme
The Wyly brothers, Charles and Sam, may not have owned up to anything, but their scandal underlines the need for fairness and openness in the market. Accused of using secret info from their roles on various company boards, like Michaels Stores and Sterling Software, they allegedly made sneaky stock trades.
Word is, they cashed in on upcoming mergers, acquisitions, and stock offers before the public got wind. The alleged damage? A whopping $550 million. Though the Wyly brothers never owned it, the case settled in 2016 without a trial, costing them $100 million.
Unknown Traders in h.j. Heinz Company
If you thought Heinz ketchup was just a wholesome American condiment like me, think again! Turns out ketchup is big business! In 2013, the SEC swiftly froze assets in a Zurich-based trading account following suspicious activity. The account made a hefty $1.7 million profit by trading on insider knowledge ahead of the public announcement about the acquisition of H.J. Heinz Company.
Some mysterious traders made bold moves, betting on Heinz's stock price to soar and buying call options just before the big news broke. It's a classic case of shady dealings in the stock market.
Insider Trading by French Doctor Yves Benhamou
Yves Benhamou, a French doctor in a drug trial for Albuferon, shared secret info with Joseph F. Skowron III, a hedge fund pro, hinting at a decision to stop part of it. Skowron played it smart, dodging around $30 million in losses for the hedge fund by selling off Human Genome Sciences, Inc. (HGSI) stock with this inside scoop.
Both got hit in the pocket, having to cough up $5.96 million. Benhamou got off with time served and three years of supervised release, while Skowron got a five-year prison stretch.
Printing Company Worker William Jackson and Stockbroker Brian Callahan
This case was one of the first to address using non-public information from financial journalism as insider trading in 1990. William Jackson, a printing company worker who had access to pre-publication copies of Business Week magazine, allegedly tipped off Brian Callahan, a stockbroker, about the Inside Wall Street column recommendations.
After checking out the magazine on Wednesday nights, Jackson would ring up Callahan the next morning to grab the recommended stocks before they hit the public. Jackson got $58,518 in penalties, and Callahan, the former Prudential-Bache broker, had to shell out $59,052.
Enron Ex-Ceo Jeffrey Skilling
After this scandal broke, I remember hearing headlines and late-night monologue jokes about Enron. In 2001, Enron's CEO, Jeffrey Skilling, faced accusations of hiding the company's true financial mess, which was much worse than what was publicly known.
Despite knowing about the massive debt and failing business units, he unloaded nearly $60 million worth of his shares just after leaving Enron, with prosecutors claiming he knew about Enron's looming bankruptcy. In 2006, he got caught red-handed: guilty of insider trading, securities fraud, and lying to auditors.
James McDermott Shared Insider Information With His Mistress
This scandal was a real head-turner. McDermott got busted in 1999 for spilling the beans on confidential info about five bank mergers to his mistress, Kathryn Gannon. She made around $80,000 in illegal profits from this shady deal. McDermott's reputation took a nosedive—he lost his CEO job, faced public embarrassment, and ended up spending five months behind bars.
Scott London Tipped a Friend About 5 KPMG Audit Clients
In May 2013, Scott London, a former partner with KPMG, the tax and auditing accounting firm, got in hot water with the SEC. He was accused of giving tips to his friend Bryan Shaw and sharing confidential info about five KPMG audit clients.
Shaw used this inside scoop to make illegal trades, raking in over $1.2 million. While the impact on the broader market wasn't huge, it hit KPMG's reputation hard. London admitted guilt and got a 14-month prison stint, while Shaw received a five-month sentence. The SEC also slapped London with civil penalties.
The Kidder, Peabody & Co Insider Trading Scandal
Joseph Jett, an employee at Kidder, Peabody & Co securities firm, found a loophole in the computer system, faking big profits by making unprofitable trades appear profitable. This fraudulent reporting boosted Kidder's profits from 1990 to 1994 until the scheme was uncovered.
Jett's sneaky moves made about $350 million in fake profits. Kidder Peabody took a $210 million hit because of the fraud, which seriously tarnished its reputation and led to its takeover and eventual shutdown.
