Circle of Friends: The Massive Federal Crackdown on Insider Trading — and Why the Markets Always Work Against the Little Guy is best-selling author Charles Gasparino’s detailed recounting of how and why the Securities and Exchange Commission and FBI target insider trading, where profitable trades are made just before important corporate events become public knowledge. As investigations shift from the outdated focus on small “boiler room” trading operations to tangled networks of people working in some of Wall Street’s biggest hedge funds, Gasparino’s eager to tell us all about the most recent crackdown.
At the book’s heart is the FBI operation called Perfect Hedge, “the largest insider trading investigation in modern history.” Gasparino begins with a retelling of how the FBI persuaded one suspected inside trader to cooperate in exchange for a reduced sentence. Next he takes us through a brief history of insider trading before settling in for more storytelling. Circle of Friends describes many of the investigation’s targets, but the book’s biggest “bad guy” is Steven A. Cohen of SAC Capital Advisors. The effort to gather evidence against Cohen weaves through the larger narrative of deception and daring.
What I liked: The central question of why the government has focused on insider trading over more insidious Wall Street criminal acts. “Not a single major financial executive faces jail time for crisis-related crimes,” Gasparino says. “The news of the day is the dramatic rise in cases of insider trading, a practice deemed by a vast and growing federal regulatory apparatus to be something on the scale of terrorism, when in reality it is not, at least when compared to other more damaging market-based frauds.” Circle of Friends isn’t necessarily a call for less oversight of insider trading, but rather Gasparino’s “attempt to provide some perspective on what our regulators view as the white-collar crime of the century, one that they’re now trying to convince the general public would be running rampant were it not for their heroic law enforcement efforts.”
What I loved: Gasparino’s skill at storytelling. Circle of Friends has the winning elements of a true crime story, because of course that’s exactly what it is. Gasparino dramatizes the investigations so well that at times you’ll forget you’re not reading a novel. And though the cast of characters is wide enough that you may sometimes forget just who worked where and why they’re important, a quick peek at the list of mini-bios in the back of the book will keep you on track.
Read Circle of Friends if: You’re fascinated by the inner workings of Wall Street. Whether you’re a fan of stronger regulation or not, you’ll come away with a more nuanced perspective on both how and why insider trading has flourished and the effect that may — or may not — have on your own portfolio.
Angele McQuade (www.angelemcquade.com) is the author of two books, including Investment Clubs for Dummies. She lives in Arlington, Va., where she also writes novels for children and teens. Her article appeared in the January/February edition of BetterInvesting Magazine.
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