As your read this post, the chubby gentleman picture to the right with no discernible neck is on trial for trading on insider information. This is against the law. He was a billionaire with everything to lose and little to gain. Why did he do it?
First, I know some of my readers might not be familiar with inside information. Investopedia does a good job explaining it:
Material information about a company’s activities that has not been disclosed to the public.
Let me explain with an example. Let’s say I worked at Apple in 2006. I worked on a secret project called the iPhone. It was going to be announced on January 9th 2007. Because it hasn’t been disclosed to the public, Apple’s stock price doesn’t yet reflect the new value this phone will bring to the company. In the few days leading up to the announcement the stock traded around $85. The day of the announcement, the stock shot to $92. A day later, $97. If I bought the stock before because I knew about the iPhone, that’s trading on insider information. If I told someone about the phone and they bought stock with this knowledge, that’s insider trading too.
But this happens all the time. Partially because it can be really hard to catch, and even harder to prove in court. Nevertheless, the guy above, a billionaire hedge fund manager, did it a lot and got caught.
But why do it in the first place? I understand if you’ve got a house payment or kids to feed, but this guy was a billionaire. He’d already made his fortune, so why risk it?
Respect.
Look at Bill Gates. When he dies he will be remembered for his contributions to technology. The same goes for Steve Jobs. Warren Buffett can point to railroads and insurance companies to show his success. Oprah built a media empire. Michael Jordan has a statue in front of the United Center in Chicago and may be the greatest athlete ever. These people built something, made contributions that in some form or another enriched the lives of others, and they were rewarded handsomely for it.
What does Raj Rajaratnam have to show for all his work? Other than a fat bank account and a I’m sure an unhealthy level of LDLs, not much. And for some people, that isn’t enough. Bankers and investors can’t look back at the things they created and get much respect, except from other bankers and investors. So even though some have everything to lose, they can’t resist risking it all to continue to have levels of performance that make them look amazing.
It sounds counterintuitive to us, but it’s this kind of attitude of performance that probably got them to where they were in the first place. And they want to continue to look important, be respected, and show they can still do what they do best. Even if they have to break the law to do it.
You can read more about this idea courtesy of the WSJ: Motive for Stock Leak Can Be Respect, Love. The article also has more about Raj and his insider trading ring. He deserves a Weaky, but that would be like giving an Oscar to Oscar.
 By The Weakonomist |
The Weakonomist is the founder of Weakonomics. Clicking the picture of the puppy will tell you more about him. If you like what you're reading consider subscribing to the blog, following him on Twitter, and checking out the related posts below. Please consider a donation if you really enjoy Weakonomics. Also keep in mind that nothing I say can be construed as financial advice. |
