SEC Using New Means to Track Insider Trading : Computers, New Laws Aid Probes, Shad Says
New means of tracking financial deals are helping uncover the type of insider trading that has shaken Wall Street in recent weeks, securities officials said Sunday.
“Today we have the ability to quickly identify the sources of those transactions and run them down,” said John S. R. Shad, chairman of the Securities and Exchange Commission.
Computers, along with laws providing greater international cooperation in tracing the flow of money and securities, are helping SEC investigators, he said.
“We are now able to quickly identify the sources of unusual activity in the market and then do investigations to substantiate or disprove their illegality,” said Shad, interviewed on ABC’s “This Week with David Brinkley.”
Agreed to Cooperate
Shad declined to say how many more cases authorities expected to prosecute.
Investment banker Dennis Levine and four others pleaded guilty this month to fraud or conspiracy charges and agreed to cooperate in investigations of how they and others reaped multimillion-dollar profits by trading securities based on inside knowledge of confidential merger plans.
Levine, a former $1-million-a-year managing director in the merger department of Drexel Burnham Lambert, was accused of making $12.6 million in illegal profits over five years on 54 investments, some of them channeled through banks in Switzerland and the Bahamas.
The cooperation of Levine and others who pleaded guilty in similar schemes is expected to lead to charges against more inside traders, said John J. Phelan, chairman of the New York Stock Exchange.
“I would think that somewhere along the line, there has obviously got to be more of this. Otherwise, Mr. Levine would not have settled out,” said Phelan, also interviewed on ABC.
‘More to Come’
“We would certainly indicate from our investigation that there is still more to come, perhaps not in the Levine (case) but in other cases,” he said.
“I don’t look at a disclosure of a Levine as being negative, but really being a positive and saying for the first time (that) we are beginning to get the tools and the technology to better understand what insider trading is and to better understand how to bring it into the light,” he said.
He said that over the past three years, the NYSE has invested more than $15 million “to create an audit trail” of all deals that take place on the exchange.
In any given year, about 10,000 “exceptions” are picked up by the system, and 640 of those will be investigated, he said. About 65 will be significant enough to pass on to the SEC for further investigation, he said.
