Financial Crime II: Insider Trading

Anyone else binge-watching Suits? Admittedly, I have a weakness for attractive, well-dressed men, but this show is also proving to be a great source of inspiration for my Financial Crime series.

Insider Trading:

Buying or selling securities based on information that isn’t available to the public for significant financial gain.

Insider trading is known as a Securities Offense and is punishable by imprisonment.  Since taking advantage of leads and rumors isn’t necessarily criminal, it can be difficult to identify. The red light comes when the value of shares increases exponentially within a short period of time.

Here’s an example of insider trading:

Mr. X overhears that Company Limited has land assets rich in gold. He immediately buys stocks in that company before they even make the announcement or begin selling it. Consequently, Mr. X sees a 500% increase in share value when they do.

Notice that simply overhearing privileged information can constitute insider trading: you don’t have to be looking for intel. Mr. X may or may not have used underhanded means to obtain his information. Either way, it is insider trading as long as it gives him an unfair investor advantage.

Suits episode 1 x 06 centers around a young woman accused of insider trading who initially faced 7 years in prison if found guilty – a typical sentence. But why is insider trading so bad? Insider trading reduces the capital available for balanced investing. It also damages the company’s reputation, whichcould deplete its own share value. Aside from that, the information could be misleading and backfire!

So how can we incorporate this information into crime fiction?

First it’s important to understand the cut-throat world of the stock market. British anti-corruption activist and hedge fund manager Bill Browder discusses this in his book Red Notice. In scenes that read like a thriller, he speaks of struggling to find a desk, facing rudeness from other traders desperate to protect their own leads, and the constant threat of losing his job if he doesn’t meet targets.

Those stakes, coupled with the eternal temptation of greed, provide more than sufficient motivation to commit a crime.

In a story concerning insider trading, you can delve into the public’s mind as well as that of your criminals. You could also include a few additional characters who are neither criminal nor victim to give an insight into the world of stock trading. Millions are made – or lost – in a day. Traders need lucky hunches, tenacity, and boldness to make lucrative trades.

They also need to work absurdly long hours, and not just because markets open at different times around the world. The job involves constant high pressure, which isn’t helped by the fact that public trust in the stock market has fallen since the crash of 2008. Whilst you don’t have to include real events in your story, do consider their effect.

Imagine a company that prides itself on ethical practice (unlike all those drowning in accusations of corporate malfeasance). You could have a lone operator in that company, perhaps a trustworthy employee who turns rogue, or multiple people guilty of sharing privileged information. For example, two directors from rival companies agree to share confidential information about another company to cure their own financial woes.

Should your regulator catch wind of insider trading, the company will be fined. Even though companies are a separate entity under the law, consider the real life ramifications: losses, lay-offs, even bankruptcy depending on the scale. In fact, your criminals might use this as an excuse for even more insider trading.

The trading floor is a noisy place. Rodney Hobson’s Shares Made Simple provides an excellent example of a stream of background dialogue that compliments the plot. In fact, the constant shouting and gesturing could be a serious impediment to your detective. How about making your investigator shy, a personality type that clashes with the brash confidence of the traders?

Your setting should reflect a sense of frenetic energy. Flashing lights, endless electronic graphs, the cascading green and red arrows, stacks of computers, gesturing traders with phones looking desperate… the stock market never sleeps.

In order to investigate insider trading, your detective will need access to sensitive information on trades, which few companies will hand over without a struggle. How will they overcome this obstacle?

You could change the dynamics of their role. The classic employee-turned-detective might work well here, since they would automatically have access to necessary information, or they  could work for a regulator like the Securities Exchange Commission. They could be a lawyer like in Suits, or they could work directly with the police (particularly if the proceeds from insider trading are used to fund another crime).

When writing your criminal, consider their history and motivations. They don’t need to be Gordon Gekko, but they might have a history of bending the rules . Remember that someone guilty of insider trading doesn’t necessarily need to have sympathetic motivations. Greed is a powerful factor, one that easily corrupts in such a high-stakes environment. Does this character enjoy instant gratification no matter how it is acquired? What examples from their past could you weave into the narrative?

Final note: Try to write at least part of your story from the criminals point of view. This will help you integrate stock market jargon in a natural fashion and show the method and reasoning behind the crime.

Have you read a novel or watched a series involving insider trading?
If you’re new to this topic, are you interested in reading or writing more about it?

Share your thoughts below!

Author: Deborah

Deborah blogs at Story Scribes. She loves Victorian murder mysteries, steak, and Mathematics. Not all at the same time.

2 thoughts on “Financial Crime II: Insider Trading”

  1. This is really fascinating, Deborah! I’ll have to read through it a couple of times to fully grasp the concept, but it would probably be interesting to correlate financial crime with current events. Investors would likely feel desperate to make money in the stocks during a crash (like in 2008), so they might be more likely to turn to insider trading.

  2. Thanks for this article, Deborah! Financial crime is a real blind spot for me and I’ve definitely avoided writing it for lack of knowledge (even when I was really into “White Collar”) so it’s great that you’re sharing with us. Keep up the great work!

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