Nov 26, 2010
The insider-trading dragnet that has rocked Wall Street this week appears likely to reinforce the feeling that the house always wins.
For average investors, a lack of trust in the markets is understandable, especially considering the latest probe comes on the heels of analyst scandals in the ‘80s and ‘90s, the scary financial crisis, the emergence of countless Ponzi schemes and the May 6 “Flash Crash.”
Pervasive investor mistrust is deeply troubling and here’s why: If that sentiment becomes cemented in the psyche of the average investor, it could drive them further away from the stock market and create another headwind for a marketplace already starving for greater participation from Main Street.
“While the rule isn’t that everyone has the same information, the rules do say it’s not a rigged deck,” said Tom Gorman, a former staff member at the Securities and Exchange Commission’s Enforcement Division. “How many times do you want to hear the deck is rigged before you decide you don’t want to play?”
The U.S. stepped up an investigation this week into insider trading that may end up being the biggest ever both in scope and magnitude. Insider trading occurs when someone buys or sells a stock or other security based on nonpublic, material information. If timed correctly, the trades can result in huge profits.