Real Possibility of a Large Market Sell-off in the near future because of Insider Trading Probe

This is my first post on ATS so please forgive me if there are any mistakes.

www.deepcapture.com...

Every major name has/will be indicted with regards to "expert networks" and the DOJ's MASSIVE insider trading probe. If these people are indicted--something I feel may actually happen due to the public need for a scape goat--their respective funds will have to liquidate their holdings. These hedge funds are not small fries by any means.

www.twsinvestments.com...

To be in the top 20 hedge funds by assets, one has to have AT A MINIMUM $10 billion. Summed up, the top 20 hedge funds own almost half a trillion dollars worth of assets. Many of the names on the list are the very same names that are up for indictment (SAC, Citadel, Ziff, etc). I know people have already mentioned this event, but I have not seen much on its implications.

Galleon was another hedge fund that was caught up earlier this year in an insider trading scandal.

www.businessinsider.com...

When they were just ACCUSED and ARRESTED for insider trading, the firm instantly had $1.3 billion (30%) of their funds redeemed. Redemptions require the fund to sell equities in large blocks at discounts in many cases, forcing them to take a loss.

The next logical question is: Why haven't there been massive redemptions on all of these funds that have been subpoenaed? No arrests have been made. In fact, the first arrest in these "expert networks" ie people who give inside information for money took place TODAY. Below is the statement from the US Attorney's Office regarding the arrest:

www.scribd.com...

It took this much effort to arrest a small fry. Imagine what they need to take Steve Cohen down? He has been known for years as one of the best in the industry. He is a billionaire with unlimited legal resources. It will be very hard to press forward without a super solid case.

If he is so rich and powerful, why will this time be any different than the other times the government has tried to prosecute fraud (ie Goldman Sachs earlier this year and their $500 million settlement). Easy: the hoi polloi need a scape goat. SAC is much easier to take down than any of the bulge brackets since all they do is try to profit off trading, as opposed to Goldman Sachs which provides many necessary and legitimate services such as advising on deals.

So why is it a big deal if one hedge fund is taken down? If they can get Steve Cohen, they can get the rest. EVERY hedge fund will have HUGE redemptions. This is not an exaggeration. They will have to unload on the market their securities. If all these funds are forced to unload at once...do the math. They already provide a great deal of liquidity for loads of securities (especially Citadel which generates billions of dollars of fees for investment banks due to their HFT program). If they not only unload their securities but stop providing liquidity, the market will easily have reason to tank. (On a side note, it would be a great excuse for a correction in the market. "It wasn't anything the government did wrong! It was these CRIMINALS who we only decided to go after now because we cannot keep propping up the Dow.")

The only reason I think this may be the tipping point for the markets is that there is too much going on for the markets to truly be at the levels they are. I do not think the world is going to end. In fact, I am hoping for this market correction. Currently I am in essentially all cash (like many investors are) waiting for a real correction to put money back into risk assets. Once a correction occurs, people will begin to chase risk assets for real once again as cash is yielding nothing and gold yields nothing but temporary trading gains. And just to any gold bugs who respond saying "paper currency is ending," I say you are truly ignoring reality. Governments need inflatable paper in order to tax people without their explicit knowledge. Without this mechanism, our taxes in the US would be a much higher rate. Therefore, we have to live with a necessary evil since its better than the other method of drastically raising taxes.

You should all be hoping the market does fall because it would mean that the market is reflecting reality instead of fantasy.

Please let me know your thoughts.

I actually got to meet the type of person who would do this sort of thing, big accountant money guy living in a giant mansion in one of the most expensive parts of LA. Is thriving in a society that is being destroyed

these people have no soul.

On the plus side, I already lost my savings in the last crash.
2nd line

reply to post by glaucon


The first arrest seems to have been made www.marketwatch.com.... In our eyes its a small fry but a step in the right direction. www.marketwatch.com... vestigation-2010-11-24

So long as Ben Bernanke, Alan Greenspan, James Morgan, Hank Poulsen, Larry Summers, John Stumpf, Ken Lewis, John Thain, Lloyd Blankfein, Dick Fuld, Jimmy Cayne and many more are still walking free, this will never be a just investigation.

Great first thread by the way.

reply to post by piddles


While I agree what they do is wrong, I do not think it means they have no soul. They just rationalize their behavior by saying, "If I did not do this, someone else would. So why should I not profit off this and buy my family nice things?"

Obviously thats an extremely slippery slope, but a lot of these people just got into this culture on accident and just adapted to their surroundings.

I am once again not defending them, as I think they should goto jail (which some people will), but I can understand why they would engage in this activity