Mark Megalli Charged

Mark Megalli Charged

Reading a newspaper | SEC Charges Hedge Fund Trader With Insider Trading in Carter’s Stock

The Securities and Exchange Commission today announced insider trading charges against a New York-based investment professional who used nonpublic information about youth clothing company Carter’s Inc. to give the hedge fund where he worked a $3.2 million trading edge.

The SEC alleges that Mark Megalli obtained the inside information through a consulting agreement he had with the former vice president of investor relations at Carter’s, Eric Martin, who the SEC has previously charged among several others in its investigation into insider trading of Carter’s stock. Martin, who had left Carter’s and started his own consulting firm, maintained contact with at least one company insider and obtained confidential information in advance of market-moving events that he supplied to Megalli so he could trade on it. Megalli enabled hedge fund Level Global Investors L.P. to avoid approximately $2.4 million in losses and make $853,655 in illicit profits by trading shares ahead of positive or negative news.

“The information was hot enough that Megalli sometimes conducted the trades while he was still on the phone with his source,” said William Hicks, associate regional director of the SEC’s Atlanta Regional Office. “After one profitable trade, Megalli bragged to his colleagues about being ‘max short’ in advance of negative news without mentioning his inside source.”

via | SEC Charges Hedge Fund Trader With Insider Trading in Carter’s Stock.

As always, I’m surprised at how little coverage these kinds of crime get. Often, I will find no stories at all on SEC charges. In this case, four news outlets covered the story, Reuters,, FINalternatives and OPALesque. I will be watching to see if there is coverage by more of the media but I do not have high expectations.

James Pilant

From around the web.

From the web site, Relative Money.

Insider trading is the trading of a public company‘s stock or other securities (such as bonds or stock options) by individuals with access to non-public information about the company. In various countries insider trading based on inside information is illegal. This is because it is seen as being unfair to other investors who do not have access to the information.

I think that the scope of insider trading will be extended to other activities like HFT, Politiciens, Lobbyist, Dark Pools operators and owners and also the TBTF banskters institutions which have been, are… able to socialize losses versus reaping fat profits and bonuses.


Should Virtue Be Rewarded?

Should Virtue Be Rewarded?

This is another one of those stories. I am always reading them. Another company discarded ethics, fired those who would practice it and promoted those who “aggressively sought profit.”

According to McClatchy, Moody’s Investor Services, fired employees who warned the company of problems with their ratings of mortgage based investments and actively promoted those who helped create the second largest economic crisis in American history after the great depression.

When the company went public in 2000 it granted its middle managers stock options. This had a corrosive effect on the integrity of the rating process. To quote from the article:

“It didn’t force you into a corrupt decision, but none of us thought we were going to make money working there, and suddenly you look at a statement online and it’s (worth) hundreds and hundreds of thousands (of dollars). And it’s beyond your wildest dreams working there that you could make that kind of money,” said one former mid-level manager, who requested anonymity to protect his current Wall Street job.

Now, what do you say? As a teacher of business ethics, this is one of those real life examples, it might be best your students never heard about. After all, when the hero in the white hat is unceremoniously dumped and those who have damaged the economic fabric of modern civilization are promoted and enriched(from what I can tell, apparently very enriched). Given the example, you have to wonder why anyone would take business ethics seriously.

The article indicates that if you were willing to give investments whatever their actual value a good rating, in many cases a triple A rating, you were promoted and given more money. Thousand of people relied on these ratings to determine what to invest in. Those unfortunate enough to rely on these credit rating agencies lost large sums of money. We are talking about minimally billions of dollars. These are inconsequential investors like retirements funds, endowments for educational institutions, and charitable organizations.

Can you doubt for a moment that our civilization is damaged by this kind of behavior. Can you doubt that those who did these things and profited should be punished so that others might be deterred? I see an investigation in progress by the Securities and Exchange Commission but aren’t they the ones who didn’t see a problem in the first place?

Unless these people are punished, do jail time, have their profits taken from them and be socially stigmatized, there is no reason for my students and the rest of the public to say the right things to me and other do-gooders; and then take the money. After all, isn’t that what the “real world” says to do?

This is the link to the McClatchy story:

This is the link to the book, A Colossal Failure of Common Sense, by Lawrence McDonald.

I recommend you visit Lawrence McDonald’s web site at: