Lenient Punishment for Illegal Insider Trading is Common in the U.S.

Senior executives and board members of publicly traded U.S. companies often engage in illegal insider trading. In the U.S., illegal insider trading is profitable and carries little penalty if you get caught. Most of all it just plain fun. Ask Robert Moffat.

Here is a real world example. Robert Moffat, a former senior VP at IBM and former board member of Lenovo, pleaded guilty on March 29, 2010 to conspiracy and securities fraud. His expected punishment for enabling illegal insider trading– ZERO TO SIX MONTHS IN JAIL. Here is the kicker. He didn’t have to agree to cooperate with prosecutors in the Galleon case to get the lenient plea deal.

An IBM spokesperson said that Mr. Moffat’s crime was a private matter between the government and Mr. Moffat. No, it is not. It is a matter to disclose to the shareholders of IBM and Lenovo. Is this how senior executives at IBM conduct themselves? Does Lenovo’s board of directors actively engage in illegal insider trading? Does it feel awesome to screw your shareholders?

Mr. Moffat provided the illegal insider trading information to Danielle Chiesi. Mr. Moffat’s lawyer stated that Mr. Moffat did not trade on the information and did not receive financial benefit from the information or illegal insider trading. Are we or the shareholders to believe that Mr. Moffat received nothing in return for spilling confidential information? What exactly did Mr. Moffat receive? Are shareholders to believe that he was just helping Ms. Chiesi because she was a friend? Here is a question no investment professional will ask – Did Mr. Moffat receive a bonus in 2009 from either IBM or Lenovo?

Is any retail or institutional shareholders of IBM or Lenovo angry enough or concerned enough to voice their displeasure with the actions of Mr. Moffat? Of course not. This is how business is now done in America.

What does this mean to you? Illegal insider trading is rampant at publicly traded U.S. corporations. Remember that when you invest in a publicly traded U.S. company. With light sentences for illegal insider trading, you can expect senior executives to continue engaging in that activity. The U.S. Attorney’s office and U.S. Magistrate Judge Frank Maas should be ashamed of themselves for not standing up for shareholders in IBM and Lenovo.

Mr. Moffat will soon be hired as a senior executive at another publicly traded U.S. company so he can continue to screw the investing public. You have been warned.

Source: WSJ 3/30/10.
Note: Raj Rajaratnam, the founder of Galleon, and Danielle Chiesi have plead not guilty in the Galleon illegal insider trading case. Their trial will start in late October of 2010.