Insider trading and M&A activity
41% of last year's biggest mergers and acquisitions announcements were preceded by abnormal dealings" on the stock market. That's according to a study commissioned by the New York Times ("Whispers of Mergers Set Off Bouts of Suspicious Trading," 6/27/06).
The article confirms what many suspect. It cites "periods of unusual trading" in which buyers could realize gains of 40% or more in a few days. The study centered on billion-dollar-plus deals over an 11 month period. The suspicion is that much of this activity is based on insider knowledge.
The article traces big spikes in pre-deal trading in the cases of the Koch Industries/Georgia Pacific and Wachovia/Golden West deals in particular.
The SEC (securities and Exchange Commission), the agency charged with regulated insider trader, would not comment on the report. As the article points, suspicions were raised recently when an agency attorney was fired after claiming his superiors were forcing him to drop an investigation of insider trading in one hedge fund, allegedly for political reasons. Other indices show that SEC prosecution of insider trading based on mergers and acquisitions is slipping, even as more of it is suspected of occurring.
These allegations are serious, tarnishing once again the motives of many acquisitions and throwing further doubt on the credibility of the stock market. The lack of government vigilance is particularly appalling, though to be expected from the current administration. It's one thing to be pro-business, another thing to be indifferent to fraud. Government oversight is needed to keep the markets honest.
8:50:52 PM 
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