John Paulson worked with Goldman Sachs to create a fund that had failure written all over it. He knew that the mortgage pool was doomed since he had built it that way. Of course he bet billions against the unsuspecting who thought it would succeed. The pool of course failed and he became unbelievably wealthy. He knew before anyone.
Bill Ackman, partners with a corporate raider. Upon learning who the unsuspecting target would be, prior to the announcement of the takeover, bought hundreds of millions of dollars worth of call options. Once a buyout price was determined and the announcement was made, the ensuing share increase was dramatic. Once again incredible wealth to the call holder. He knew before anyone.
Carl Icahn, significant Apple shareholder, pounded the table about management creating shareholder value, of course, not via the traditional method in Apple’s history of creating new products such as itunes, ipads and iphones. Carl demanded share buyback. The demand was not for a one time event but continually through 2015. Of course Carl’s biggest supporter was and is board member and former Vice President Al Gore. How much Al added to his already significant holdings of Apple is not known. However, the fact that Al on buyback announcement day was the third biggest inside holder at 33 million dollars meant a dramatic increase in Al’s wealth, 8% in one day. He knew before anyone.
Michael Lewis, in his book Flash Boys, has pointed his finger, justifiably, at high frequency trading. The ability to see the trade as to size and price, ahead of everyone, makes it a distinct advantage. In the old days it used to be called inside trading. Today it’s called creating market liquidity. The high frequency trading boys and girls play for cents on the trade, which, over a time can amount to real money. Although an unquestionable practice it has not seemed to bother, the regulators, who have been predictably quiet until now. He knew before anyone.
Paulson, Ackman, Icahn and Gore, however, play for the same millions but in a much shorter period of time sometimes within 24 hours and, of course, are not concerned about public visability. If the regulators don’t care, neither do they.
If interviewed they all would, more than likely, take the position that Martha Stewart did inside trading. They on the other hand would assert they were simply taking advantage of the opportunities being presented.
Apparently, insider trading is all in the eye of the beholder especially when you know before anyone.
Along with his 40-years of dedication in the financial services industry, Bill is the President and CEO of GPSforLife, has recently authored a highly successful book entitled 44th: A Presidential Conspiracy, publishes his dynamic monthly financial newsletter MacroProfit, and faithfully continues his third decade on the radio with It’s All About Money, which can be heard weekdays on Money Radio in Phoenix and in podcast form on his website (and on smartphone apps) published at billtatro.com weekdays at 5pm Eastern. Bill can be reached via email at firstname.lastname@example.org and on Twitter @tatroshow.