Reporters Provide Perspective to Insider Trading Scandal

By Kevin Sweeney
April 12, 2006 06:24 PM

Amid allegations of insider trading at Goldman Sachs and Merrill Lynch, business reporters and editors are taking stock of internal safeguard measures that protect the confidentiality of their content.

Federal prosecutors allege that analysts at the firms teamed up with a Wisconsin-based plant production employee at BusinessWeek to steal advance copies of the magazine. Prior to publication, the analysts would use secure information in the "Inside Wall Street" column to initiate trades that netted nearly $7 million in profits.

This was not the first time the BusinessWeek column has been at the center of controversy, creating new headaches for executives at the magazine.

"The plot revealed Tuesday marked the second time in three years that Wisconsin printing plant workers have been charged with filching information from the 'Inside Wall Street' column for use in illegal insider trading," according to Paul Gores of the Milwaukee Journal Sentinel. "In 2003, four people - including two who worked at the Perry Judd's Inc. plant in Waterloo, where BusinessWeek had been printed - were convicted and sent to prison. Quad/Graphics has printed the magazine since 2004."

A spokesman for the Wisconsin plant that prints BusinessWeek told Gores that strict security measures were put in place when the plant received the contract with McGraw-Hill, the magazine's publisher.

In light of the allegations, some reporters profiled the recent string of insider trading scandals that have been targeted by the Securities and Exchange Commission.

"The charges highlight the fact that insider trading, which garnered big headlines two decades ago with cases against Ivan Boesky and Michael Milken, has remained a steady presence in corporate America and particularly on Wall Street," according to Walter Hamilton of the Los Angeles Times. "Of the SEC's 630 total cases last year, 50 involved insider trading."

And though it may seem like insider trading is on the upswing, Brooke A. Masters of The Washington Post reports that technology is quickly becoming the feds' best tool for catching insider trading before it gets out of control.

"Federal authorities and other outside legal analysts noted that computer surveillance programs and improved international cooperation have made it much easier for authorities to detect improper trading when it yields significant profits," she writes.

This story received its fair share of international attention. Publications from such countries as China, Canada, Australia and the United Kingdom ran stories on the scandal.

"The insider-dealing ring is one of the widest ever uncovered," writes Stephen Foley of The Independent in the UK. "In total, participants invested in 25 stocks ahead of big deals or the publication of magazine tips, locking in profits when the information became public."

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Copyright © 2008 Donald W. Reynolds National Center for Business Journalism