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Circle of Friends: The Massive Federal Crackdown on Insider Trading---and Why the Markets Always Work Against the Little Guy Hardcover – 8 Jul 2013

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Product details

  • Hardcover: 384 pages
  • Publisher: HarperBusiness; 1 edition (8 July 2013)
  • Language: English
  • ISBN-10: 0062096060
  • ISBN-13: 978-0062096067
  • Product Dimensions: 15.2 x 3.1 x 22.9 cm
  • Average Customer Review: 3.5 out of 5 stars  See all reviews (2 customer reviews)
  • Amazon Bestsellers Rank: 839,255 in Books (See Top 100 in Books)

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“’Circle of Friends’ is an insightful recap of how we got to the place where insider trading became the favorite target of regulators, and is a good guide on where it all goes from here as investigators continue to pursue SAC Capital Advisor’s Steven A. Cohen.” (New York Post)

“Circle of Friends reads like a page-turning thriller.” (Connecticut Post)

About the Author

Charles Gasparino is a senior correspondent for the Fox Business Network and the Fox News Channel, where he reports on major developments in the world of finance and politics. A former writer for the Wall Street Journal and Newsweek, he has also served as a columnist for the New York Post and The Huffington Post as well as a contributor to The Daily Beast, New York Magazine, and Forbes. Gasparino is a recipient of numerous business journalism awards, including the prestigious Investigative Reporters and Editors Award for The Sellout. His other noteworthy books include Blood on the Street and King of the Club.

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Format: Hardcover Verified Purchase
Charles Gasparino is a master of the art of investigative financial journalism, as has been evidenced by his previous books such as 'King of the Club', 'The Sellout', 'Bought and Paid For', 'Blood on the Street', and now this excellent exposé of insider trading 'Circle of Friends'.

In his normal way, the author has researched this subject extensively and his book allows the reader to take a ringside seat to 'view' the tawdry, avarice driven activities undertaken by people in all levels of the investment market, including ancillaries such as printers, typists, and even taxi drivers, who seek to cash in on early non-public information on companies either with financial results or with probable corporate machinations. Any thing in fact that is likely to affect a company's share price, that will enable a fast buck to be made by acting in advance of the 'uninformed' market.

Many individual stories of insider trading are related and told in the most interesting manner, and which leaves the reader amazed at the ingenuity, deviousness, guile and cunning of those prepared to risk their freedom for personal fiscal enhancement.

However, running throughout the book is the worrying thought that, whilst devoting huge resources convicting inside traders is important, the Regulators have not invested the same resources, or determination in pursuing miscreants, of whom there were many, in the Banking industry. Among a whole litany of dubious trading activities such as credit default swaps, most if not all went unaddressed, as if the financial crisis,(which had far wider dire financial consequences for the whole world than ever did insider trading, and a huge dip into the pockets of taxpayers), had never happened.
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Format: Hardcover
The central narrative - involving wiretaps and big name hedge funds - is interesting but the book itself is poor in both structure (because the publisher wouldn't wait for the SAC investigation to conclude, the book has no ending as such. It's just a case of 'let's wait and see what happens') and also in writing style (some of the chapters seems strangely unrelated to each other, like they were written at different times and so facts/exposition is repeated). Equally problematic is that the author clearly doesn't believe that insider trading is a particularly bad thing (at least compared to other white collar crimes), which kinda makes you wonder why he wrote a whole book on it. If the author had (a) waited for the investigation to conclude, and (b) taken more time in writing it, this could have been a much better book.
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Most Helpful Customer Reviews on (beta) 31 reviews
23 of 26 people found the following review helpful
Highly Recommended 7 July 2013
By C. Overgaard - Published on
Format: Hardcover Verified Purchase
Gasparino has written a thorough, comprehensive review of the federal government’s efforts to deal with insider trading – the use of ill begotten non-public information to buy or sell securities which, when the information becomes publicly available, will rise or decline in price. He notes that while prostitution is considered the oldest profession, insider trading has to be at the top of the list of the world’s oldest economic crime.

In the aftermath of the Great Depression, during which insider trading was very prevalent and regarded as a fact of life, President Franklin Roosevelt chose as the person to clean things up, someone who had profited handsomely from securities speculation. Joseph P. Kennedy, the father of President John Kennedy. Kennedy was chosen to be the head of the newly created Securities Exchange Commission that administered the Securities Act of 1933 and the Securities Exchange Act of 1934. Section 10(b) of the 1934 Act made it unlawful to use or employ, in connection with the purchase or sale of a security, “any manipulative or deceptive device or contrivance in contravention of” rules and regulations of the SEC. The principal such rule was Rule 10(b)(5).

But it was several years before the Rule was widely used and its parameters defined by the Supreme Court. Although the SEC can only initiate civil actions, federal law enforcement officials, such as U.S. Attorney Rudy Giuliani, used criminal statutes to go after high profile investors who used misappropriated inside information.

Gasparino goes into considerable detail about criminal insider trading cases in the last fifteen years. Much of his reporting follows the work of two teams of FBI agents who tried to induce suspects to become informants. Their work was made easier when the courts authorized wiretaps of phone conversations.

Gasparino’s reporting indicates that insider trading was much more prevalent than I had thought. Thanks to Cameron Funkhouser of the Financial Industry Regulatory Authority, computer tracking systems can flag instances of unusual trading and can “find nearly any questionable stock sale no matter how seemingly insignificant.”

The book traces the work done by authorities to convict Raj Rajaratnam, the head of the Galleon Group, and Rajat Gupta, the former head of McKinsey. Gasparino covers some of the same ground, but from somewhat different perspective, as Anita Rachavan in her excellent book The Billionaire’s Apprentice. Rachavan focused on the rise and fall of Rajaratnam and Gupta, as Indian-Americans, and the work of Indian-Americans Sanjay Wadwa, assistant regional director of the SEC’s New York office, and Preetinder Bharara, the US attorney for the Southern District of New York who worked to convict Rajaratnam and Gupta. Gasparino is somewhat less complimentary of Bharara.

Several pages of Circle of Friends describe efforts by the federal government to convict Steve Cohen of SAC Capital, a hugely successful hedge fund. A number of former employees of SAC have been found guilty of insider trading but the government has been unsuccessful in obtaining information sufficient to convict Cohen. According to Gasparino, “nearly 100 SAC trades [were] flagged by FINRA as suspicious.” The government was hopeful that a former SAC employee who obtained advance information about a medical report and has been charged with insider trading would enter into a plea agreement and reveal the substance of a phone conversation with Cohen shortly before the allegedly illegal trading began but the employee has refused. The statute of limitations for this trading episode will shortly expire and within recent days news reports say Cohen will not be charged.

Gasparino is clearly frustrated that the government has devoted so much time and money to combat insider trading but has not successfully prosecuted any the of people who were responsible for the financial collapse in 2008 that required a massive bailout.
13 of 15 people found the following review helpful
Insider Trading --- Why should we care? 13 July 2013
By Alan F. Sewell - Published on
Format: Kindle Edition Verified Purchase
This book interested me because I've been in the market for 37 years. I earn my living by investing. I was once contacted by a person claiming to have privileged information about a company on the basis of an alleged friendship with a CEO. I responded by telling the fellow to never call me again.

Insider trading is thus one aspect of the stock market, which is a mixture of legal, quasi-legal, and illegal components.

A part of the market is rational. It operates on legal and ethical principles and behaves the way a long-term investor wants it to, which is to gradually increase the value of a portfolio over a period of years.

Another part of the market is non-rational. It is based on the computer driven trading that churns the markets up and down for no reason at all --- those of billions of high frequency trades, most of which are fake orders designed to "sniff" what other high frequency traders are doing.

Another part of the market is based on quasi-legal manipulation, such as hedge funds or the trading desks of an investment bank taking a large short position in a stock and then starting an unfounded rumor to scare investors into selling. After the "big boys" manipulate the stock down as far as they can, they cover their short positions for a profit, go long, and then run the stock back up. Wall Street firms call this manipulative rumor mongering "investment analysis." They even peddle their "investment analysis" for fancy fees, thereby getting paid yet again for advising their clients to take the losing sides of trades.

Another part of the market is an implicit conspiracy whereby institutional investors act in concert without explicitly cooperating. A recent example was the story going round that the Fed was supposedly "tapering" their quantitative easing. It was painted in the financial press as being "the end of the world for stock and bond investors." A month later the story blew over and the markets are now making new highs. Experienced traders learn how to read market scripts and use them to their advantage. Experienced traders were buying the market during the "tapering plunge" while the clowns were selling it.

Another part of the market is the "illegal, but we don't care" aspect such as naked shorting. Stock brokers are legally required to locate shares of stock to "short" but until recently they routinely ignored the law because the SEC didn't care to enforce it. Hedge funds were encouraged to orchestrate massive "short attacks" with phantom shares that didn't exist.

And finally there is the blatantly illegal part of the markets based on insider trading, i.e. acting on market-moving knowledge that has not been made public. These might be events such as the company being awarded a large contract or information about a decision by the management of a troubled company deciding to file for bankruptcy.

Insider trading isn't based on any lies or manipulations designed to deceive and defraud public investors. For insider trading to be profitable it has to be based on VALID information. Public traders who pick up on insider activity by noticing increasing volume in a stock are often able to ride the coattails of the insiders. The public investors don't know or care who the insiders are or the reasons why they have decided to buy or sell the stock, they just ride the trend. Some stock traders argue that insider trading is BENEFICIAL because it provides an early indication of events that have not been made public. Better, they say, to let the air out of the balloon a little at a time than to burst it all at once when the news is officially released to the public.

Thus, author Charlie Gasperino understands that he faces a hurdle in convincing us that insider trading is all that big of a deal, especially in comparison to the more destructive frauds and scams that Wall Street traffics in. He explains it this way:

As the SEC fretted over how to keep the pressure on inside traders, it failed to grasp how the vast changes on Wall Street, including the creation of mega-banks such as Citigroup, posed potentially bigger problems for the average investor. Stock market research became more suspect; banks themselves were so big that their corporate clients became their best customers, and thus no analyst or researcher would dare slap a "sell" recommendation on a company that was paying his or her salary.

In these new megabanks, the small investor wasn't viewed as a client, but as a conduit used to pump up the value of the bank's real clients-- corporate customers such as Enron and WorldCom and countless overhyped technology companies-- even if those clients were frauds, as more than a few turned out to be. The small investor had little reason to suspect that analysts were now reduced to little more than touts; such relationships were barely disclosed outside the fine print of research reports.

This compromised research would play a large role in the destruction of small investor wealth following the collapse of the Nasdaq stock market in 2000. What was the SEC doing at this time? Not much when it came to cracking down on Wall Street's research scam or the growing menace of the big banks.

Gasperino demonstrates that the SEC is now cracking down hard on insider trading, just as it seems to be in the early stages of cracking down on some of the more obstreperous Wall Street shenanigans that it has heretofore ignored. These would be things like stockbrokers trying to steer their customers into buying stocks that its favored institutional investors, who pay it large fees, are trying to unload on the suckers.

I wouldn't call this book "an exciting read" but it does deal with insider trading cases in a workmanship and objectively researched manner. It explains, among other things, why insiders like Michael Milken and Martha Stewart were convicted of various offenses related to insider trading.

The people likely to be most interested in this book will be those who have a personal or professional interest in one of the well-known insider cases of recent years. Stock brokers, professional stock traders, and business lawyers will profit from reading it. I don't know that casual stock investors would learn that much of interest about the particular cases of insider trading. You'll learn way more about the OTHER Wall Street shenanigans, such as how your broker may be one of those who lies to the hoi polloi in order to stick them with shares of stocks its favored clients want to unload.

Also, everybody who manages their own investing does need to be aware that the Feds are cracking down on insider trading. If nothing else this book will alert you to avoid talking to gossip-mongers who claim to have privileged information about a publicly traded company. It's always better to say "I don't have time to talk to you" when these types try to engage you in conversation than to run the risk of being caught up in an insider trading investigation.
6 of 6 people found the following review helpful
Sell Recommendation 3 Aug. 2013
By Robert B. Lamm - Published on
Format: Hardcover
I have read two of Charles Gasparino's previous books and liked both of them; in fact, "The Sellout" is my personal favorite on the root causes of the 2008 financial collapse; it's thorough and well thought out, and I've kept it in my library.

In contrast, "Circle of Friends" is a hodgepodge of incidents about the government's pursuit of insider trading with only one central thesis: that the pursuit has distracted the SEC and prosecutors from catching and punishing the people that caused the collapse. I disagree with that thesis; among other things, the actions that led to the collapse were to some extent stupid but not criminal, and even those that were criminal would have been challenging to prove to a lay jury. I nonetheless was willing to be persuaded otherwise. However, Gasparino offers not one whit of proof to support his theory, other than to repeat over and over again that the government was pursuing the wrong bad guys.

I was also willing to hear an argument that insider trading should not be prohibited. As someone who's practiced securities law for 40+ years, i strongly disagree, and the argument has been made before, but - again - I was willing to listen. However, he never says that. So we're left with his theory, which suggests that the guys the government was pursuing were bad guys, at least for the most part, but they should have gotten away with their crimes (I guess; I can't figure out what else his point might be).

As noted above, the book is a hodgepodge; it's as though it's a series of articles that were thrown together in a book, and perhaps that's what it is, but it's really not necessary to tell me twice or three times what short selling is, and he frequently repeats things that he's already told us. As a result, the book lacks a cohesive narrative; in contrast, read Anita Raghavan's wonderful "The Billionaire's Apprentice," which not only combines the threads of a variety of prosecutions but weaves them into a larger tapestry of the Indian diaspora in the US. I also get the impression that the book may have been rushed to press for some reason - possibly to compete with Ms. Ragahavan's book? - because it leaves us waiting to find out if SAC or Steven Cohen will be prosecuted; why not wait to tell the whole story?

Another criticism is that the book is very sloppily written. I often complain about my pet peeve - where are the editors? - and I will do so again; they were clearly not here. There are some typos, and other annoying things, such as the use of the phrase "circle of friends" on nearly every page or twice or more on a single page in some sections. We get it. He also seems to have an approach-avoidance problem with commas; there are places where he drops them in entirely unnecessarily and some sentences that I had to read twice or three times because I couldn't figure out where one phrase ended and another began. I'd also like to think that an editor might have asked Mr. Gasparino to explain or attempt to prove his theory, but I know that's asking too much. After all, he's a best-selling author and people will buy his book (duh, like me?), so why bother.

My final complaint about this book is that it is just plain mean spirited. He makes gratuitous comments about many people, most obnoxiously about white collar defense attorney Charles Stillman, including mocking Mr. Stillman for something he said to a jury in a totally unrelated matter. It seems pretty clear that Mr. Gasparino has it in for Mr. Stillman, whom I've met and who is one of the people that I'd call right away if I got into trouble. At the very least, Mr. Stillman doesn't merit this kind of attack prose, and it really offends me.

So you have my recommendation: SELL!!!! If you want to read something worthwhile about insider trading, read Ms. Ragahvan's book and also pick up a copy of "Den of Thieves" by James Stewart; it's an oldie but a real goody. That can't be said for this one.
2 of 2 people found the following review helpful
Enjoy Charlie's commentaries. 11 Aug. 2013
By Amazon Customer - Published on
Format: Hardcover Verified Purchase
Trust his assessment of what is going on in the financial world.
Have his other writings and would recommend his books to anyone interested in what is REALLY going on behind the financial curtain.
2 of 2 people found the following review helpful
excellent 20 Sept. 2013
By John e yeatts jr - Published on
Format: Hardcover Verified Purchase
excellent book I would highly recommend it to anyone.. but be prepared to run away from the democratic party and fast
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