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Matt Levine

Fraud Is No Fun Without Friends

Also SEC priorities and penny stocks.

The way a lot of financial crime works is by slow acculturation. You show up at work on your first day, bright-eyed and idealistic, and meet your new colleagues. They seem like a great bunch of people, they’re so smart and know so much and seem to be having so much fun. They go out for beers after work a lot, and sometimes they let you tag along and listen to their hilarious jokes and war stories.

During the day, they teach you how to trade Treasury futures, and it is all so exciting and high-stakes and important. You shadow one experienced trader and quickly find yourself imitating his mannerisms, looking up to him, hoping to be like him one day. “Here is where I put in some fake orders to spoof the price higher,” he says; “a little razzle dazzle to juke the algos.” “Isn’t that, uh, illegal?” you ask timidly. “Hahahaha illegal!” he replies ambiguously. You do not press the matter. Three months later you are bragging in the desk’s electronic chat room about your own big spoofing victories. As you type “lol i just spoofed em so good hope i dont go to jail” into the chat window, you feel a rush of pride; now you really fit in, you are one of them. You go out for beers that evening and you are the center of attention; everyone congratulates you and celebrates your achievements. It is a great day. Six months later you are arrested.