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Insiders profit from government leaks

For corporate officials in Illinois and across the country, insider trading of securities opens one to prosecution and potentially serious consequences. Some federal prosecutors who have been heavily involved in major insider trading cases are now addressing the culture of leaks in the political system. Of particular concern is the political intelligence industry. Unlike traditional leaking of policy information to journalists, the industry pays for insider information in order to profit on the stock market.

It is well known that public policy decisions can have a major positive or negative impact on stock prices. Some hedge funds are reported to pay consultants who work in or around the federal government to leak information that they can use to make beneficial investing decisions based on these insider details. For example, one man, who consulted for a hedge fund after leaving a job in public health care administration, was charged with disclosing information about changing government payments to the fund. The fund then used this heretofore undisclosed information to make over $3.5 million in trading profits.

The man allegedly received the tips from people currently employed in the government. While these cases deal with government secrets rather than corporate ones, they still hinge on the use of insider information to profit on the stock market at the expense of others without such access. While rumors and leaks are often an important part of Washington culture, direct remuneration by investment firms can push the practice into the arena of white-collar crime.

Cases involving allegations of white-collar crime can often be complex, relying on documentation of financial transactions and confidential communications. People charged with white-collar crimes can turn to a criminal defense attorney for a strong defense. A lawyer can analyze the evidence put forward by the government in order to challenge the allegations and work to avoid a conviction and protect an accused person's career.

Source: Bloomberg, "Washington Leak Culture Meets Wall Street's Insider-Trading Cops," Bob Van Voris and Drew Armstrong, March 29, 2018

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