SEC's Temptation and Spousal Betrayal

Imagine a person so utterly lacking in ordinary human feelings that he would pay one million dollar’s to man’s wife for handing over corporate information found on the fellow’s home computer. Would that not be the lowest act of insider trading imaginable? Would that not be the ultimate in despicable greed?

Well, no, actually. That would be your high-minded, greed-fighting SEC at work .

“The ex-wife of a former Microsoft Corp. employee could be eligible for a $1 million bounty for helping U.S. regulators impose one of the largest-ever insider trading fines against Arthur Samberg’s Pequot Capital Management Inc. The Securities and Exchange Commission got ‘direct evidence’ of market-moving information passed to Samberg by David Zilkha from a hard drive in possession of Karen Kaiser, Zilkha’s former spouse, the SEC said in a complaint yesterday. That means she may be eligible for a whistleblower reward of up to 10 percent of the $10 million fine Samberg and Pequot agreed to pay in settling the case.”

Now, I confess that I am no fan of the adolescent code of omertà—don’t name names, stop snitchin’—when serious wrongdoing is involved. As Thomas Jefferson said: “A prejudice prevails too extensively among the young that it is dishonorable to bear witness against one another.”

But the fact of the matter is that there is nothing inherently wrong with insider trading. Yes, a company might make its employees promise not to profit from inside information, and then a company such as Microsoft would have a legal claim against an employee who betrayed its confidence and broke the contract. But that is no reason to make insider trading a matter for government prosecution.

And if we are to condemn insider trading because a corporate employee betrays the trust of his firm, what are we to say about a firm or government agency that would encourage people to betray the trust of their spouses? Imagine the press reaction if Microsoft offered a one-million-dollar reward to people who handed over evidence that their husband or wife had violated an anti–insider trading contract with the company. We would, and not without reason, be hearing about the song from 1984:

Under the spreading chestnut tree,

I sold you and you sold me.

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