Insider trading isn’t always about the money. Lucre may drive the modestly paid, but wealthy corporate honchos would be nuts to take the risk for that. New research, though, shows that the better compensated the U.S. executive, the more likely a dodgy tip or trade. Maybe they don’t feel rich enough, but hubris or peer envy seem a better bet.
It’s clear enough why, say, members of Congress might trade on confidential information. For these lucky lawmakers, it’s not obviously illegal, and with an annual salary of $174,000 (U.S.), they may feel they need more money to match their power. So senators, for example, can do things such as shorting stocks the day after a closed-door Federal Reserve briefing on the financial collapse in 2008.
But lofty executives are a puzzle. The risk of losing a fabulous income, paying a hefty fine or even going to jail far outweighs the possible gain from an illegal trade. Yet company chieftains like Martha Stewart, whose dubious 2001 stock sale would have saved her a paltry $46,000, still roll the dice. In fact, among the top five officers of any company, the highest paid are the most likely to be indicted for insider trading, according to a new joint study by business-school professors at Indiana and Richmond universities.
Some criminologists have found that, at the highest corporate levels, white-collar crime can seem too easy to resist. Others attribute it to big boardroom egos who believe they are above the law.
Lawyers still seem unsure why former McKinsey boss and Goldman Sachs director Rajat Gupta may have given allegedly illegal tips to his buddy, recently convicted Galleon founder Raj Rajaratnam. Accused of insider trading, Gupta may never have been paid for the information, and his investment in Galleon tanked.
But in a wiretapped conversation, Rajaratnam mentions that Gupta wanted to be in “a billionaire circle” rather than the “hundreds of millions circle” of Goldman. His motive seems less about money than envy of his richer friends.
That may not be surprising, considering how much the vastly rich have outpaced the merely rich in recent years. They may not be among the protesters in Zuccotti Park, but the 1 per cent who haven’t made the 0.01 per cent may nonetheless share some of their rage.