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Coronavirus corporate crisis bailouts are cash cow for insider trading: Study
Senators accused of insider trading amid coronavirus panic
Former federal prosecutor Doug Burns weighs in on whether the allegations that some senators sold off stocks by using private information not available to the product are actually insider trading.
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WASHINGTON/BOSTON – White-collar crime prosecutors and defense attorneys are likely to be busy following a massive economic stimulus package from the U.S. Congress aimed at mitigating the fallout from the coronavirus, according to a new academic study of insider trading.
The research, from scholars at the University of Pennsylvania’s Wharton School, Stanford University, University of Cambridge and IESE Business School, found insider trading profitability jumped dramatically during the 2007-2009 global financial crisis and subsequent government bailout.
“Anytime the government picks winner and losers, there is a greater opportunity for insider trading by connected individuals,” said Daniel Taylor, an associate professor at University of Pennsylvania’s Wharton School and one of the authors of the report.
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The report analyzed trading by corporate insiders at leading financial institutions before and after Congress finalized its $700 billion Troubled Asset Relief Program (TARP) to purchase toxic assets from troubled lenders, the details of which were largely thrashed out by executives and government officials in private.
The study, published online this month in the Journal of Finance, found evidence of abnormal trading by politically connected insiders 30 days ahead of the TARP infusions, which either boosted or hit company share prices, depending on the situation.
The researchers examined open market purchases and sales by officers and directors at 497 publicly traded institutions between 2005 and 2011. They then compared the trades placed by insiders who appeared to have identifiable connections at regulators, the Treasury and Congress, with the trades placed by insiders who appeared to have no such connection.
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