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Monday, October 16, 2006

Spitzer’s Sideline Seat to Conflicts and Insider Trading

Just in time for the AG to choose what color carpeting he wants in the governor’s mansion, The New York Times published a two part profile covering the life and times of Eliot Spitzer. I was actually called for commentary and pointed out to the reporter Spitzer’s general inadequacies when taking a case to court. I would have liked to have seen more attention paid to how Spitzer’s much ballyhooed global research settlement has also been a general failure. Not only were smaller investors left without evidence of wrong doing since no firm admitted any guilt, but the independent research industry which was suppose to take off as a result of the settlement is generally floundering. “Indy shops” are closing all the time. Do you want more evidence? Conflicts on interest in the form of “finder’s fees” are still prevalent in the financial industry. Yesterday’s Chicago Tribune explores a fuzzy line between a finder’s fee and a kickback. At the very least these fees should be disclosed.

But while there’s some semblance of investor friendly regulation for brokerages, it’s still the Wild West in the hedge fund market. The New York Time’s business reporter Jenny Anderson wrote an article for today’s paper exposing how hedge funds are making loans to companies and then placing investment bets based on the business intelligence they gain from the loan’s intentions. You don’t have to be a prosecutor to realize this is insider trading, which continues to be rampant on Wall Street to the detriment of the individual investor - perpetually the outsider looking in.


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