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Portfolio > Alternative Investments > Hedge Funds

Top 10 Wall Street Crooks: Insider Trading

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Insider trading cases have grabbed the headlines over the last few years, shaking hedge funds, the financial world and even celebrities.

In fact, in the last five years, there have been more than 70 convictions for insider trading in the U.S. The list of individuals and companies caught up in the crackdown by the SEC and the Justice Department seems almost endless, from SAC Capital to Raj Rajaratnam.

Is it any wonder that 70% of Americans think those who work on Wall Street would break the law just to earn a lot money, Knut Rostad writes in his blog on ThinkAdvisor: 5 Years On, Americans See Wall St. as “Foreign … a Culture Apart”.

Of course, the urge to use a little secret info to make a mint is nothing new. When ThinkAdvisor went to compile a who’s who of insider trading miscreants, it wasn’t hard to find cases from the 1990s, the 1980s and one we couldn’t resist from way back in the Roaring ’20s, though he wasn’t convicted.

Check out our Top 11 Wall St. Crooks: Insider Trading. We’ve counted them down from the lowest to highest amount stolen in terms of 2013 dollars.

Albert H. Wiggin (Photo: courtesy of

(Honorable Mention, since everything he did was legal, but he had a law named after him–in a bad way)

Albert H. Wiggin: $4 million ($54.7 million today) in 1929

Kind of like the modern godfather/figurehead of insider trading, Wiggin is the one man on our list who got away with his “crime.” Still, his misdeeds created such public outrage that the practice of shorting your own company’s stock provoked the passage of a namesake law outlawing it, thw Wiggins Act. Wiggin, the head of Chase National Bank, shorted 40,000 shares in the company, giving him every reason to see the bank fail. October 1929 might have been a black month for most investors, but Wiggin made out like, well, a bandit. Looking for a place to vent its anger, the public settled on Wiggin. Although, at the time what he did wasn’t illegal, public pressure forced Wiggin to forgo his $100,000 ($1.3 million today) annual pension. And his name does live on in the law books.
Marylin Star and James McDermott

10. Marilyn Star, $88,135 ($128,000 today) in 1997-98

She might be at No. 10 on our list, but Marilyn Star is our favorite insider trader. After all, she is the only porn star we’ve come across who was convicted of illicit stock trading. Star, who was born Kathryn Gannon, first came to public notice in a series of X-rated films in the early ’90s. That work led to high-end strip club appearances. After a divorce she started “dating” James McDermott, a banking exec with Keefe, Bruyette & Woods. A little pillow talk later and Star had some insider information about bank mergers with which to purchase stocks. In 2002, she pleaded guilty to insider trading charges and served three months in prison. She has been quoted as saying she was a naive young woman who listened to an older man. McDermott pleaded guilty to stock fraud, served five months in jail and agreed to pay $230,000 to victims of the scheme.

Martha Stewart enters Manhattan federal court with her attorney John Tigue in March 2004 (Photo: AP)

9. Martha Stewart: $280,000 ($360,000 today) in 2004

No list of insider trading cases would be complete without the queen of baking, home decorating and crafts products. Stewart created a cottage industry around her television show and magazine that seemed unstoppable. Unstoppable until she was charged with insider trading in 2004. The amount involved might be chump change – $280,000 worth of ImClone stock – but the media attention on the case was around the clock. Stewart spent five months in prison and agreed to a ban on serving on the boards of public companies in 2006 and paid $195,000 ($226,000 today) in fines and penalties. The ban ended in 2011 and she returned to the head of her namesake company. After her stint in the big house, Stewart maintained her sense of humor, exchanging barbs with David Letterman about her time away.

8. Donald Johnson: $755,000 ($846,000 today) in 2007

Being an executive of a stock exchange ought to fund a very nice lifestyle, but that apparently wasn’t enough for the Nasdaq’s chief, Donald Johnson. Johnson was convicted in 2011 of using insider information to trade shares of United Therapeutics, Honda and other companies from 2006 to 2009. Johnson’s job on the market intelligence desk made him privy to all kinds of secrets that could move markets. He used the info to hi advantage and, ultimately, to his detriment. He pleaded guilty to one count of insider trading and was sentenced to three and a half years in prison and ordered to make restitution. The Wall Street Journal reported that after his arrest Johnson said he was gratified by support he received from colleagues and would not ask them to write letters to the court on his behalf. What a guy.

Traders on the NYSE.

7. Doug Whitman, $935,000 ($1 million today) from 2006-09

Whitman managed more than $100 million through his Whitman Capital hedge fund. Whatever his reasons, and in two days of sometimes emotional testimony he denied any wrongdoing, Whitman walked a path that led him to two years in prison. He was convicted in August 2012 of insider trading charges involving stocks of Google, Polycom and Marvell Technology Group. In January, he was sentenced two years in the big house and fined $250,000.

Raj Rajaratnam, the billionaire founder of the hedge fund Galleon Group, going to court in January. (Photo: AP)

6. Raj Rajaratnam, $53.8 million ($56 million today) in 2011

Some have reported that the man who received the longest insider trading sentence in history is living like a king in prison. The truth seems more nuanced. Sure, the former head of Galleon Capital lives on the best floor in his prison, but according to CNBC, the entire prison is a hospital and Rajaratnam is quite ill with Type II diabetes that is under “poor control.” In any case, the convicted trader received 11 years in prison for securities fraud and five counts of conspiracy. He was also ordered to pay back the $53.8 million plus a $10 million fine. His convictions were upheld earlier this year. Rajaratnam is scheduled to be released when he is 65. Others from Galleon, once among the largest hedge funds in the world, have also been convicted. They include Zvi Goffer who received a 10-year sentence and Rajat Gupta, convicted of leaking info to Rajaratnam, who was sent up the river for two years.

A diagram showing Bauer & Kluger charged in connection with an insider trading scheme (Photo: AP)

5. & 4. Garrett Bauer and Matthew Kluger, $37 million (about $45 million today) from 1994-2011

It sounds like something only Hollywood could make up. Bauer, Kluger and a middleman, Kenneth Robinson, used burner phones to discuss insider tips gleaned by Kluger from law firms for which he worked. Over 17 years, authorities said the pair turned a tidy profit of $37 million (Bauer estimated the take at $23 million) by trading shares in Sun Microsystems, 3Com and others. For his part, Bauer hit the lecture after he was nabbed in 2011, urging students not to follow his crooked path. Alas, U.S. District Judge Katharine Hayden didn’t buy his contrition and sentenced Bauer to nine year in prison. Kluger got a dozen years. So much for the fancy Manhattan apartment and other luxuries purchased with the illicit profits.

Joe Nacchio, with his wife, Anne Esker (Photo: AP)

3. Joe Nacchio: $52 million ($68.7 million today) in 2001

Qwest Communications grew by leaps and bounds after its 1996 founding. Through mergers and acquisitions it provided services to 14 states west of the Mississippi, including its home state of Colorado. Sure, there were bumps along the way. But why would anyone have been worried about a $250 million SEC fine because of accounting irregularities, including a deal with Enron that may haled that company hides its own fraud? Then, in 2007, CEO Nacchio was convicted of insider trading relating to the sale in 2001of company stock based on non-public knowledge. He served 70 months in a federal prison camp and in home detention before being released on Sept. 21, 2013, according to the Denver Post. The newspaper reported that Nacchio has not divulged his plans.

Former Enron executive Jeffrey Skilling

2. Jeff Skilling, $60 million ($79.2 million today) in 2001

Enron jumped on the energy trading market and was riding high. The ink that was spilled writing about the company would have to be measured by the barrel. The ink flowed faster as the truth about company’s finances became public. In 2004 Skilling was charged with 35 counts of insider trading, fraud and other crimes, including selling more than $60 million in company stock based on insider knowledge of the company’s faltering position, which resulted in a bankruptcy filing shortly afterward. In 2006, Skilling was found guilty on 19 counts and sentenced to 24 years and four months in prison. He was ordered to pay a $45 million fine. In June of this year, a judge cut his sentence to 14 years. He agreed to pay $41 million in restitution.

Ivan Boesky leaving a Brooklyn half-way house in Dec. 1989 (Photo: AP)

1. Ivan Boesky, $200 million ($1.6 billion today) in the early ’80s

The early 1980s were rife with cases. None was more spectacular than that of Boesky who used information from Wall Street insiders to time his trades and manipulate markets. Prosecutors said he received $3 billion in leverage from junk bond king Michael Milken. The scheme worked until the feds caught up with Boesky who gave up his pals, even recording conversations with Milken in 1986. Boesky’s profits came from trades from deals including Philip Morris’ acquisition of General Foods and Chevron’s purchase of Gulf. Boesky served 22 months in prison and paid a $100 million fine. Half went to his victims and the rest to the U.S. Treasury. As of last year, Boesky had a new wife and was living in San Diego.

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