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LEGAL INSIDER TRADING IN THREE EASY STEPS, BROUGHT TO YOU BY JP MORGAN AND THE SEC

KEVIN WILSON, MARIA CHRISTINA PADRO, JULIAN ASSANGE & staff
Monday March 17, 2008

A confidential memo obtained by Wikileaks shows that not only has the U.S. Securities and Exchange Commission created an insider trading loophole big enough to drive a truck through, but that Wall Street is taking full advantage of it, establishing 'how-to' programs and even client service divisions to help well-heeled clients circumvent insider trading regulations.[citation needed]

In 2000 the SEC promulgated Rule 10b5-1. The new Rule was designed to address the confusion caused by a series of court decisions that had left investors uncertain about what constitutes insider trading. Rule 10b5-1 was designed to clarify what constitutes illegal insider trading.

But top Wall Street houses were not to be deterred from advantaging their big clients at the expense of their small ones.[citation needed] Wall Street firms like JP Morgan found loopholes in Rule 10b5-1 that allowed them to continue trading on inside information "legally."[citation needed] Indeed, JP Morgan has gone so far as to set up an entire 'selling program' within its Securities division to help their clients profit from the loophole.

Documents obtained earlier this month by Wikileaks from JP Morgan Private Bank, which subtitles itself as "World class solutions for wealthy individuals and families", show the firm has a dedicated '10b5-1 Selling program,' along with a 'dedicated 10b5-1 team'.

Here's how it works:

1. An insider client transfers all or a portion of their company stock into a JP Morgan Securities Inc. brokerage account.

2. The insider then develops, in conjunction with the 10b5-1 team, a 'phased, pre-planned sales program to be executed at either market or

specified prices'.

3. Depending on the information available to the insider (but not the public), the insider can decide whether to execute the sale or not.[citation needed]

According to a statistical research paper published by Stanford's Graduate School of Business in September last year, executive 10b5-1 trades beat gains relative to non 10b5-1 executive trades by more than 500%.[citation needed]

As reported in BusinessWeek on Nov. 6, Alan D. Jagolinzer, an assistant professor at Stanford University Graduate School of Business, recently completed a study of roughly 117,000 trades in 10b5-1 plans by 3,426 executives at 1,241 companies. He found that trades inside the plans beat the market by 6% over six months. By contrast, executives at the same firms who traded without the benefit of plans beat the market by only 1.9%.http://businessweek.com/magazine/content/06_51/b4014045.htm

Alternative Explanation
It is possible for persons with insider information to abuse these 10b5 plans; however, there are legal and ethical uses of such a plan. In general, JP Morgan is offering a plan which will eliminate price-change risk on an individual's portfolio by creating a collared position. Indeed, a large percentage of executives around the world legally enter into these sorts of plans. These plans can only be used by "insiders" if they do not possess non-public information at the time of the transaction, and if it could be proven that they did have insider information, then they could be prosecuted.




See
See the full confidential JP Morgan Private Bank insider trading memo:

JP Morgan Private Bank insider trading how-to
JP Morgan Private Bank was successfully contacted by Wikileaks, but chose not to respond when asked to deny the report.

For more information on this release, please email press@wikileaks.org

Additional contacts:

JP Morgan Private Bank

http://www.jpmorgan.com/pages/jpmorgan/private_banking
Prof. Alan D. Jagolinzer

http://www.stanford.edu/~alanj1/
Tax Justice Network

http://taxjustice.net
See also
Leaked Doc Shows How Barry Diller Protected Himself Against IAC's Tumble

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