Liz’s view
Federal prosecutors’ indictment of 30 white-shoe lawyers and their associates, alleging more than a decade of insider trading on corporate mergers, is both juicy and quaint.
Savor it. The next big insider-trading case will look nothing like this one.
The case unveiled yesterday in Boston federal court alleges a widespread ring of lawyers and middlemen used secret, if blundering, code (takeovers were “flights,” “surgery,” and “weddings”) to profit on confidential deal intel dating back to 2014. There are Russian brokerage accounts in the British Virgin Islands, cash kickbacks, early-morning info drops at a Florida Starbucks, and the timeless tell of out-of-the-money call options bought just before deal announcements.
It’s a charmingly analog sequel to the scandal that brought the Roaring 1980s takeover boom to a screeching halt, took down Drexel Burnham and Kidder Peabody, and struck the M&A world to its core more than three decades ago.
The next version will be tougher to catch and harder to prosecute. Disappearing encrypted messages and prediction-market bets tied to crypto wallets will replace options trading in Caribbean brokerage accounts. Well-timed trades by members of Congress or family members of administration officials will make it harder to get excited about a bumbling netherworld of law-school roommates.
The legal arguments will get fuzzier, too: The alleged mastermind of this ring, a lawyer who worked at big law firms including Latham & Watkins and Sidley Austin, obviously had a duty to keep his clients’ M&A plans a secret. Jeff Bezos’ stepson does not. When you sign a confidentiality letter and then your brother’s hairstylist buys call options on the target company, the indictment writes itself. But when the arena expands from stocks to anything-you-can-wager-on, the definition of inside information gets slippery, enforcement becomes legal whack-a-mole, and the edge goes to whoever moves fastest into the regulatory gaps.
Kalshi and Polymarket know this and, in my conversations with executives there, are moving quickly to get ahead of it — if for no loftier reason than that nobody will use a platform they don’t trust. Polymarket’s referral to the Justice Department of a US soldier who allegedly bet on the Maduro raid (and Kalshi’s preventing him from creating an account in the first place) is a good sign. But the long tail of bets creates a long tail of self-dealing that will be harder for authorities to catch.
Notable
- The reputational stakes are anything but small for the white-shoe M&A firms implicated, especially as it relates to lawyers “who are not working on securities matters... obtain[ing] access to material, nonpublic information relating to securities transactions,” a Georgetown University ethics counsel told Bloomberg Law.