The White Collar Club

Lost amid the frenzy over Matthew Martoma’s potentially record-setting insider trading bust is the story of his inside source, the doctor accused of flipping the data. It’s easy to lose sight of a low-profile doctor with otherwise no connection to financial world, especially with sticker shock numbers like $276 million involved. But Matthew Martoma was relatively low-profile to the general public prior to the insider trading allegations, but as hedge fund trader, business journalists naturally glom on to his name and story. Meanwhile Sidney Gilman, the man who leaked the information enabling Martoma’s fall, has slipped through the fray with far less scrutiny. And that’s a problem, according to Reynolds Holding at Reuters:

“Almost lost in the hoopla, however, is the snitch at the heart of the alleged scheme. Sidney Gilman, a neurology professor, consulted with Elan and Wyeth on an Alzheimer’s drug the two developed, chaired the committee overseeing the drug’s safety and sold investors his expertise through a research firm. In each case, he explicitly promised not to reveal confidential information. Yet according to prosecutors he repeatedly broke that promise by passing tips to Martoma.”

In the 1980s and 90s, arbitrage legend and insider trading convict Ivan Boesky lived on as a cultural icon – his sources, like Martin Siegel and John Mulheren, have long been forgotten. And though the dynamics change when celebrity is involved, how well is Sam Waksal, Martha Stewart’s inside source, remembered?

It’s easy to get caught up in the characters that reaped the greatest benefits insider trading scandals, but the people who enabled them are significant and warrant more scrutiny and detailed coverage. When a relatively unknown candidate needs vetting, political reporters routinely come through with detailed profiles and investigative reporting revealing the character and, frequently, missteps of potential candidates for office.

Once somebody breaches the public trust by leaking inside market information, they become a public figure subject to the same scrutiny. Martoma has already learned this. But Gilman, and other leaks, should as well. Reporters should perform deep dives into these people’s histories, interviewing friends and family and coworkers and employers to better reveal this person’s possible motivations and the environment that contributed to him leaking such information. Federal regulators and prosecutors may dig up some of Gilman’s relevant tax, financial and criminal history, where applicable. But they can miss stuff, and moreover, if the source flips and aids the prosecution, authorities may keep some of the information to themselves. Solid investigative reporting, including digging through public documents and records, can better shed light on Gilman and others. It may be time and resource intensive, but it provides a public service.

Martoma may be guilty of a colossal crime, but it wasn’t possible without Gilman. Gilman, and other inside sources like him, should have their stories thoroughly investigated and reported as well.

Matthew Martoma (above), ex-trader for the mammoth hedge fund SAC Capital, was freed today on $5 million bond for charges that he used inside information to reap $276 million in profits and avoided losses for his company. This is one of several insider trading cases linked to SAC in recent years.

Check out my Storify for the latest developments: http://storify.com/awmorrell/sac-capital-linked-to-insider-trading-scandal

The hits keep coming for HSBC, the multinational British megabank that could face the largest money laundering fines in U.S. history. Reuters and the NYT both reported Monday on their growing legal woes, which could involve criminal charges in addition to ever-growing fines.

From Reuters:

A U.S. fine for violating federal anti-money laundering laws could cost HSBC Holdings significantly more than $1.5 billion and is likely to lead to criminal charges as well, Europe’s biggest bank said on Monday.

HSBC said the U.S. investigation had damaged the bank’s reputation and forced it to set aside a further $800 million to cover a potential fine for breaches in anti-money laundering controls in Mexico and other violations.

The Times and Reuters both handle the story with a straight, breaking-news structure that mainly aims to get main news out there quick and easy.

And the dutiful business reporters each end the piece with the state of HSBC’s financial health and earnings. But in between the top and the bottom, they offer different context for readers. After its opening grafs, Reuters moves to the possibility of a settlement and what kind of form that might take (most likely a deferred prosecution, which allows the company to avoid indictment and not risk capsizing the business). The NYT provides readers a broader context early on for just what these charges stemmed from and what they mean (a national security-focused crackdown by the feds on illegal money moving that may be supporting terrorism and drug cartel funding):

Regulators and prosecutors are looking into whether foreign banks failed to monitor cash transactions at their American subsidiaries, allowing drug dealers and terrorists to move tainted money. In addition to scrutinizing money laundering activities, they are also investigating whether institutions skirted rules by transferring money for nations subject to sanctions, like Iran, Sudan and North Korea.

Over the last few years, most of the cases have focused on those so-called sanction violations. The Treasury Department reached a $619 million settlement with ING Group in June over such accusations. A couple of months later, the British bank Standard Chartered agreed to pay $340 million to New York’s top banking regulator, which claimed the bank had laundered hundreds of billions of dollars for Iran for nearly a decade.

The NYT story broadens the context rather quickly, and we get into the global impacts and context of the scandal. HSBC isn’t the only offending bank losing millions of dollars in the crackdown, but they’re the kingpins and the only company–so far–likely to face criminal charges.

Both news organizations give the average reader the same overall story and narrative. But the NYT tends to write more analytical, contextual (and wordy) stories vs. Reuters, which has more of a laser focus on HSBC’s immediate predicament, and tells its story in a more concise style in the wire-service tradition.

Neither is necessarily better. I like the context NYT provided, but Reuters story is very readable and may eliminate some extraneous information that people actively following this story don’t need a review on.

Meanwhile, Bloomberg is out in front with more bad HSBC news from today, this time coming from Ireland and relating to the Bernie Madoff scandal.

HSBC Holdings Plc (HSBA) failed to keep millions in clients’ assets invested with Bernard Madoff safe “under lock and key,” investors in an Irish fund said.

Kalix Fund Ltd. invested in Thema International Fund Plc (TIFHUQE), which in turn invested with Madoff. London-based HSBC, as Thema’s custodian, didn’t act in time to protect investors’ money from fraud, even though it knew of the risks of dealing with Madoff, a lawyer for Kalix told Judge Peter Charleton in a Dublin court today. The lender also handed over custodian duties to Madoff and then tried to conceal it, the lawyer said.

Not sure whether the other publications are just behind Bloomberg on this story or they don’t care because it isn’t U.S. focused.

Financial institutions became a lightning rod for public animus and disdain amid the 2008 meltdown. Many people, from regulators to over-leveraged home buyers, were guilty in the run-up to the collapse of the housing and financial sectors, but Wall Street firms – insulated by golden parachutes and moral hazard – became easy scapegoats to an American public suffering from the recession. As shady and at times illegal banking practices have been revealed in succeeding years, intrigue has endured. The Occupy Wall Street movement only intensified the public’s awareness and wariness of the high finance industry, and revelations of financial malfeasance or comeuppance are greeted with widespread schadenfreude.

But many white-collar lawsuits and criminal indictments go unnoticed by the general public, which lacks a nuanced understanding of the financial world and is apt to miss stories overshadowed by inflated political narratives and news. Being over-charged for ATM fees isn’t too difficult to understand, but what about the effects of London inter-bank rate-fixing scandal? Or the seafaring, British JPMorgan trader that helped incur billions of dollars in losses and could face prison time?

Thankfully, a slew of talented journalists are keeping a steady eye on the vast industry, dutifully reporting the latest insider trading convictions, allegations of securities fraud and banking lawsuit settlements. High-powered and well-funded news operations boast stables of talented journalists worth keeping track of, like the New York Times’ Gretchen Morgenson and Bloomberg’s Jonathan Weil. But younger journalists at smaller operations are also holding the industry accountable, like American Banker’s Jeff Horwitz. And of course, when bigger stories with broader political and policy implications break, the general news sites, TV talking heads and opinion blogs jump into the fray as well. I aim to curate the best (and worst) of the reporting and opinionating out there, and then try to make some sense of it myself.