Another strange tale from the stock market

Four friends in California are having a very bad day today after they were charged by the SEC for insider trading. They had generated more than $4.4 million according to the press release.

"The SEC alleges that a former day trader living in California, Steven Fishoff, schemed with two friends and his brother-in-law to pose as legitimate portfolio managers and induce investment bankers to bring them "over the wall" and share confidential information about an upcoming secondary offering. After promising they wouldn't disclose the nonpublic information to others or trade an issuer's stock before an offering was announced, they violated the agreements and tipped each other about the upcoming offerings expected to inherently depress the price of the issuer's stock. The tippees then shorted the stock before an offering was publicly announced and assured themselves profits on the short sales after the stock price dropped."

There are so many things wrong with this.

What the heck is the legal definition of a 'legitimate portfolio manager'? These guys must have had a bit of money to sling if they pulled in $4.4 million.

The problem here is the investment bankers -- the guys who are supposed to be working for the companies -- but were telling anyone who said they were a portfolio manager that bad news was coming. Not once or twice while the 'portfolio manager' was vetted, but 15 times.

The complaint says they "deceptively established relationships with investment banks by separately cold-calling banks and posing as portfolio managers of legitimate investment fund."

Granted, they made money on non-public information but this is yet another example of just how leaky the stock market is. The companies were largely biotechs.

In any case, the SEC complaint great reading.