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Friday, February 22, 2013

5 of history's most infamous cases of insider trading

By Peter Wendt

Ever since there was profit to be made investing in businesses, insider trading has lurked beneath the surface, favoring those with the right connections. Regulations against these practices placed greater scrutiny on those exploiting their positions, but that does not stop unscrupulous individuals from trying to slip under the radar. The following are five of the most famous cases of insider trading in history.

William Duer

William Duer orchestrated the first high-profile case of insider tading in United States history. An influential figure during the Revolutionary War era, he became the secretary to the Board of the Treasury under Alexander Hamilton. Duer had no moral scruples when it came to using his power to gain insight into the market, and he kept his contacts even after he went into private speculation. He invested in several banks for a number of clients before a brief panic in the industry ruined both his finances and his credibility. The actions of Duer eventually led to the establishment of Wall Street.

Albert H. Wiggin

The great stock market crash of 1929 exposed the seedy underbelly of a world bloated by falsehoods and expectations. Perhaps no single man was so vilified by the public as Albert H. Wiggin, the head of Chase National Bank. Investigations revealed that Wiggin had short sold over 40,000 shares of his own bank, meaning he made about $4 million off intentionally poor business practices, a strategy that was legal at the time.

R. Foster Winans

Unlike the other members of this list, R. Foster Winans was not a powerful executive or government figure. Instead, he wrote a column for The Wall Street Journal titled "Heard on the Street." Winans analyzed a different stock every week, and his opinions were so respected that he often directly influenced that stock's performance. Realizing this, he started accepting bribes to reveal his findings early. A court later ruled that his actions were illegal, despite some questions.

Raj Rajaratnam

Raj Rajaratnam was the billionaire founder of the Galleon Group hedge fund firm. He began receiving insider information from former schoolmates in a number of large corporations, standing to make an estimated $60 million from the illegal sharing. Rajatnam was arrested in 2009 and sentenced to 11 years of jail in 2011, the longest sentence ever given for insider trading, and also fined $150 million.

Martha Stewart

Few criminal cases reached such notoriety as that of famed homemaking expert Martha Stewart. Stewart built an empire on wholesome cooking, cleaning and decorating, but she also amassed a considerable fortune through savvy investing. In 2001, however, she raised eyebrows by selling 4,000 shares of a company one day before its shares dropped as the result of an FDA decision. It was later revealed that her broker had ties to the company's CEO and advised her to make the sale. Stewart spent several months in jail for her crimes.

About the author: Peter Wendt is a writer & researcher living in Austin, Texas. If you've been harmed by insider trading, or if you've been accused of insider trading yourself, Wendt recommends visiting Austin business attorney, John McDuff.