Insider Trading Is Not a Romantic Surprise

You know the easy way that regulators catch insider traders, right? It goes like this. When a big merger is announced, the Financial Industry Regulatory Authority puts together a list of people who traded the target’s stock in potentially suspicious ways. Then they send the list to all of the banks and law firms and companies involved in the deal and tell them to circulate it to their deal teams, asking everyone who worked on the deal, “do you know anyone on this list?”

If you did work on the deal, and you tipped your buddy about it so he could trade and you could split the profits, getting this list might ruin your day. Obviously you can shrug and hand the list back and say “never heard of them,” but that makes it look even more suspicious if you are caught. Plus it is not always plausible. There is the notable case of a former Evercore Partners Inc. banker named Frank Perkins Hixon, Jr., who shared inside information with his father, Frank Perkins Hixon, Sr., who then traded on that information. When Evercore got the Finra list and sent it to young Hixon, he looked at it and said, nope, don’t recognize any of these names. When Evercore pressed him on the fact that one of the names was his father, who has the same name as him, he was like, oh that Frank Perkins Hixon. He got out of prison a couple of years ago.