In case you read about U.S. Attorney Preet Bharara’s comments last week and wondered why in the world ordinary folks would look at the investment industry and figure it’s a rigged game, the answer is: because it is!
Arthur Samberg and whatever is left of his old firm, Pequot Capital Management, agreed to pay $28 million to settle charges that he and the firm received insider information that they used to trade shares of Microsoft Corp. In the typical weaselly manner of these settlements, Pequot and Samberg did not admit or deny the allegations, and the SEC still managed to take credit for the settlement.
This is the same SEC, mind you, that dismissed one of its own attorneys, Gary Aguirre, as he attempted to pursue allegations against Pequot. If anybody on either side had the stones to stand up and admit their behavior, the real news here appears to be that Pequot and Samberg paid off the SEC, which succeeded in collecting $28 million (but no admission of guilt, mind you) in spite of itself.
Many people I know would look at this and laugh. It’s certainly not an example of regulation. What it is an example of is how closely aligned the interests of investment managers and regulators are. After four years, everyone wanted this to go away, and $28 million was enough to accomplish that.
Laws and regulation are required because people cannot be trusted to act decently. The kinds of things Samberg and Pequot were accused of are subject to regulation and disciplinary measures. He was caught and disciplined. But does a $28 million fine really constitute a disciplinary measure? To me that’s a lot of money, but Samberg can write that off as a cost of doing business.
Most ordinary people I know would look at what Samberg was accused ofâ€”extorting a prospective employee for personal gainâ€”and see it as another example of the everyday goings-on on Wall Street, a place where the privileged take advantage of information and power pathways not available to the rest of us to make money for themselves and other wealthy, powerful people.
Is that populist enough for you? Who will defend the kind of behavior Samberg was accused of as they attack the creeping reach of the government? As we consider candidates for the upcoming election, where exactly is the boundary between love for Milton Friedman and regulatory loathing and the notion that a level playing field should be just that?