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Speaker 1: Welcome to the Bloomberg Law Podcast. I'm June Grosso. Every

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Speaker 1: day we bring you inside an analysis into the most

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Speaker 1: important legal news of the day. You can find more

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Speaker 1: episodes at the Bloomberg Law Podcast, on Apple podcast, SoundCloud,

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Speaker 1: and on Bloomberg dot com slash podcasts Vegas, Vegas, Vegas

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Speaker 1: Casino security cannot be beaten out of your minds exactly.

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Speaker 1: You need at least a dozen guys doing a combination

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Speaker 1: of cons It might remind you of the cast of

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Speaker 1: Ocean's eleven. A poker playing securities trader in Monaco, a

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Speaker 1: Greek with a chain of Manhattan restaurants, the son of

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Speaker 1: a pharmaceuticals company board member, a Goldman Sachs vice president,

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Speaker 1: and a London investment banking couple who called each other

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Speaker 1: Pops and Popsy. They're all accused of making tens of

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Speaker 1: millions of dollars in an international insider trading ring. Joining

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Speaker 1: me is former federal prosecutor Peter Henning, a professor at

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Speaker 1: Wayne Stay University Law School. Peter tell us about this

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Speaker 1: international insider trading ring. It starts with the two junior

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Speaker 1: analysts who were working in London, who were also sharing

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Speaker 1: an apartment and so what they did, in effect was

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Speaker 1: they just went into the computer systems at their offices

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Speaker 1: in stole information and then went out and sold it

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Speaker 1: to what the Justice Department describes as middlemen, who then

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Speaker 1: in turn sold it to other traders in Europe. So

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Speaker 1: the interesting question in this case is will this ever

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Speaker 1: see the inside of a US courtroom because one of

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Speaker 1: the defendants is back in Thailand and one of the

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Speaker 1: defendants is in France, and so will there be extradition

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Speaker 1: to the United States. That's certainly an open question. So

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Speaker 1: how sophisticated was the scheme? Well, this is a multilayered scheme.

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Speaker 1: It start started with stealing the information, but then it

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Speaker 1: got sold to the middlemen, who in turn gave it

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Speaker 1: to others in Europe to trade. This was a multi

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Speaker 1: level insider trading scheme that started with stealing information but

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Speaker 1: now has grown to be probably the most significant insider

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Speaker 1: trading case that we've seen in the last decade since

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Speaker 1: Raj Raj Rottenham, because this was so systematic and the

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Speaker 1: amount of money involved here. According to the Justice Department indictment,

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Speaker 1: it said that the traders made tens of millions of

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Speaker 1: dollars and so This is really a very significant insider

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Speaker 1: trading case. Is it significant in terms of the amount

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Speaker 1: of money or in terms of the extent of the

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Speaker 1: network of people involved. I think it's both because when

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Speaker 1: you look, the Department of Justice identified sixteen different companies

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Speaker 1: that were involved in corporate transactions from and also to

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Speaker 1: Given the amount of money involved, I'm not sure if

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Speaker 1: the Justice Department or the SEC knows exactly how much

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Speaker 1: money was made, but they're, off the top of their

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Speaker 1: head estimate is tens of millions of dollars, and under

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Speaker 1: the federal sentencing guidelines, if you have gains of that amount,

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Speaker 1: that can result in a very, very substantial prison term.

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Speaker 1: But a lot of this was conducted face to face,

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Speaker 1: and so it's going to be more difficult for the

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Speaker 1: prosecutors to put a case together without a cooperator, and

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Speaker 1: so they're really going to need someone to come in

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Speaker 1: and cooperate and be able to say this is what happened,

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Speaker 1: because otherwise all you really have is a paper trail

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Speaker 1: and people making money. But you know, in the stock market,

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Speaker 1: people make money all the time. A Goldman Sachs vice

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Speaker 1: president is involved here, and this is the third allegation

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Speaker 1: of insider trading in the last eighteen months of someone

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Speaker 1: at Goldman Sachs. Well, they're all separate cases, and what

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Speaker 1: is interesting about them, and of course what is really

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Speaker 1: the danger for Goldman Sachs is the last thing they

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Speaker 1: want to have happen is that people inside the firm

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Speaker 1: are trading on inside information. The very reason why Goldman

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Speaker 1: is retained is that it will maintain the confidentiality of

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Speaker 1: the information. So the case against Mr Khne involves a

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Speaker 1: buyout of Buffalo Wild Wings and he was able to

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Speaker 1: give someone that information who made a great deal of money,

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Speaker 1: and he got some cash in return, at least according

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Speaker 1: to the indictment by the U. S. Attorney's Office. So really,

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Speaker 1: for Goldman there is some reputational risk here that the

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Speaker 1: last thing they want to have is a number of

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Speaker 1: their people trading on inside information, because that damages not

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Speaker 1: only their reputation, but also will firms rely on Goldman

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Speaker 1: to maintain confidentiality. And so I really think for Goldman

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Speaker 1: they need to ensure that this doesn't happen again. Three

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Speaker 1: times in eighteen months is quite a bit, even though

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Speaker 1: the cases are unrelated. But there's always the concern that

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Speaker 1: somehow information is leaking out, and we see that a

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Speaker 1: lot information does leak and people make very well timed trades.

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Speaker 1: But the last thing Goldman wants is that one of

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Speaker 1: its people is the source of that inside information. Is

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Speaker 1: it that Goldman is just not doing enough to to

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Speaker 1: make sure this kind of misconduct doesn't happen, or is

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Speaker 1: that a problem that all the top tier banks has.

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Speaker 1: I think it's a problem for all the top tier banks.

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Speaker 1: If you want to trade on inside information or confidential

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Speaker 1: corporate information, Um, sometimes it is just so tempting to

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Speaker 1: either take it and give it to someone else, or

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Speaker 1: take it and use it yourself. Um. That inside information

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Speaker 1: in a lot of ways is like making free money

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Speaker 1: in the stock market. Um, you don't know who's on

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Speaker 1: the other side of your trade. But in a lot

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Speaker 1: of ways, it's easy money. But at some point in time,

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Speaker 1: the SEC is going to notice, and the federal prosecutors

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Speaker 1: are going to notice, and you're running a risk of

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Speaker 1: not only blowing your entire career, but you could spend two, three, four,

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Speaker 1: five years in a federal correctional institution. And no one

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Speaker 1: wants to go to prison. And so the real risk

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Speaker 1: here is that it's so tempting, but you have to

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Speaker 1: be able to resist it. And I'm sure Goldman and

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Speaker 1: the other leading investment banks would love to tell their

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Speaker 1: people don't do this, but um, can you stop someone

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Speaker 1: from taking inside information? Really, the answer to that question

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Speaker 1: is no. That someone really wants to take it and

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Speaker 1: use it, they're going to do it. Thanks Peter, that's

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Speaker 1: Peter Henning of Wayne State University Law School. Thanks for

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Speaker 1: listening to the Bloomberg Law Podcast. You can subscribe and

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Speaker 1: listen to the show on Apple Podcasts, SoundCloud, and on

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Speaker 1: Bloomberg dot com slash podcasts. I'm June Brosso. This is

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Speaker 1: Bloomberg