Just like doping is one of the evils of the world of sports, the same goes for insider trading in the world of finance. The outcry over the use of performance enhancing drugs is legitimate in the sense that it creates a distorted playing field between the competitors and allows some to advance far further than they legally would. The removal of star names from the baseball Hall of Fame and the stripping away of titles and medals is regularly being carried out. However, it seems that the objective is not being reached. People still use these substances and try to evade getting caught rather than not doing it in the first place.
Due to the lack of effectiveness, there are calls that rather than limit the use, there should use allowed so that everyone is equal again and then it can prove to be a better measure. This does go against most of what a true sports fan would believe in but this accommodating stance does follow the sentiment of “if you can’t beat them, use some drugs to enhance your performance.” The debate over use of drugs in sports will rage on. The question now is that should a similar policy be allowed in finance. Insider trading is a problem or gaming the system is one of those things that mirror drug use.
Every time the regulators catch onto the last scam, a new company manager comes up with a new strategy to use any advantage he has, legal or illegal, to make some money. The most recent case of Heinz options being traded through Swiss accounts seems to be the new strain of the drug and the SEC has filed a lawsuit and launched an investigation. The question needed to be asked is whether the resources at the disposal of the regulators and the subsequent punishment on the books worth it to pursue these culprits. Unlike the stripping away of medals, the maximum punishment that an insider gets is not personal bankruptcy but to just give him a slap on the wrist.
That takes place after resources and effort has been used to prove the crime first which is not easy by any measure of the word. I am not advocating that insider trading should be allowed with companies having special departments for them. The crux of my thesis is that either make the punishments harsh enough to make it undesirable to carry out any such activities and have laws in the books. Until that can happen, there is no need to use the resources at the regulators’ disposal for a strong word against the perpetrators. If the situation carries on, these people would come up with a new way of doing the same thing and trying not to get caught again.
Right now, the “get out of jail free” card that is being offered is just a toothless consequence and must be addressed. If that cannot be done, it would be better to legalize the practice across the board to at least make it a level playing field for everyone. I would hope that, if caught, the traders are made an example out of but I feel pessimistic as the same hope was dashed after all the other cases and the LIBOR rigging scandal. Fingers crossed.