“It’s a straightforward announcement that the Southern District is still in the insider trading prosecution business,” Daniel Richman, a former federal prosecutor, who is now a professor at Columbia Law School told the New York Times when Billy Walters was recently indicted.
Business, hardly, someone should let the Securities Exchange Commission and the FBI in on the obvious: “knowing more than the other guy is what free market capitalism is all about,” Murray Rothbard told the 1989 Michigan Libertarian Party Convention. “Insider trading laws are a direct assault on free markets, free enterprise, private property and all the rest of it.”
In his speech Murray was disappointed that libertarians weren’t paying much attention to the issue and his least favorite politician, U.S. Attorney Rudy Giuliani was the “scourge of Wall Street” at the time locking up anyone he could for insider trading on his way to the mayor’s office.
Rothbard pointed out there were no victims in insider trading and that it in fact “it helps the economy” by syphoning assets away from the “clucks” to those who know more.
In econlib.org Stanislav Dolgopolov writes, “There is little disagreement that insider trading makes securities markets more efficient by moving the current market price closer to the future postdisclosure price. In other words, insiders’ transactions, even if they are anonymous, signal future price trends to others and make the current stock price reflect relevant information sooner. Accurately priced stocks give valuable signals to investors and ensure more efficient allocation of capital.”
But it’s the 80’s all over again with U.S. Attorney Preet Bharara and Andrew J. Ceresney, the head of the S.E.C.’s enforcement division mugging for the cameras as they announced charges against the legendary Las Vegas gambler.
The New York Times reported, “The charges represent one of the most notable insider trading prosecutions since a federal appellate court overturned two prominent convictions — a ruling that led to the dismissal of about a dozen other convictions.”
“Brazen insider trading continues to be a blot in our securities markets, and so the integrity of our markets continues to be a priority for this office,” Mr. Bharara said at the news conference.
Bharara can bluster all he wishes, but the Southern District doesn’t sound like its conviction record is all that hot and if past is prologue Mr. Walters will be the toughest case he’s ever had.
Former Clark County Sheriff Bill Young told the Las Vegas Review Journal he’s lost track of all the law enforcement agencies that have bragged they were “going to nail Billy Walters.”
“I’m still waiting for that, and I’m long retired,” Young said with a laugh.
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Walters is both Vegas legend and royalty with the RJ reporting, “Walters is a hard man to dislike. His Southern charm and ‘aw shucks’ attitude will ‘dazzle you to death,’ according to ex-sheriff Young. I can attest to that and then some. In my short, undistinguished career in academia, I would always show the “60 Minutes” segment on the Las Vegas gambler and developer.
Although not seeming to have anything to do with macroeconomics or microeconomics, the piece illustrated how a person could make a living doing anything if they were good at it. And having worked at a bank where Walters did business, I could personally vouch for how good he was at betting football and other sports. I told stories of how safe deposit boxes were emptied of millions in cash to provide the capital for Walters’ Super Bowl bets each year.
Having been chased (unsuccessfully) by the authorities for years Walters is no publicity hound, he had a message to deliver on that show: that the real crooks operated on Wall Street not in the Las Vegas books. He rattled off the usual list of high-flying fraud cases, Enron, WorldCom, and others that he’d “invested” in.
Of course obtaining information others don’t have is the way to win consistently at sports betting. But the authorities take a different view when it comes to betting on stocks. Walters’ latest indictment claims he benefited by $43 billion from information he received from former Dean Foods Chairman Thomas Davis. The 10-count indictment doesn’t mention who was harmed.
Davis supposedly leaked Walters inside information about one of the nation’s largest food conglomerates to cover his gambling debts. According to the indictment the gambler gave Davis a ‘burner’ phone — to hide his calls and tricky code names were reportedly used like “Dallas Cowboys.”
Golf legend Phil Mickelson also owed Walters (my guess would be from bets on the course), so Walters passed stock tips on to him, according to the blue suits. But, the Fed’s have given Mickelson a mulligan, not charging him. Davis, who resigned from Dean Foods’ board in August, has pleaded guilty in the insider trading investigation and is reportedly cooperating with authorities.
Meanwhile last summer the Nevada Legislature passed bill 433 allowing for entity wagering. Marc Meltzer explains, “In brief, entity wagering can be described as a sports betting mutual fund. Investors buy into the fund and the
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entity manager will invest that money in sports wagers instead of traditional businesses like a mutual fund would.”
It’s believed that once football season arrives funds will pop up like topsy, specializing in betting on specific teams or divisions or betting propositions. No doubt the SEC and FBI are drooling over the possibilities for insider trading busts.
Greenberg Traurig gaming attorney Mark Clayton, one of the attorneys who helped draft the legislation, told the Las Vegas Business Press that sports wagering is a data intensive business. There are several variables that determine how the betting lines are set, and there are people who have developed models to crunch the data and believe they can more accurately predict who is going to win.
Clayton points to one website that runs 50,000 computer simulations of a game and predicts who will win based on those percentages.
“We have heard anecdotally that people have developed math models to better predict sports wagering,” he told the Business Press. “People may want to invest with that person to make sports picks for them. Think of it as an unsophisticated investor who doesn’t have the time or inclination or otherwise want to worry about picking individual stocks. That person gives a $5,000 check to Fidelity and lets that mutual fund adviser pick their stocks or what they think is an appropriate investment.”
Nevada Sports Investment Group’s Ken Murphy told Casino Player in Wall Street quantish fashion, “The development of proprietary algorithms coupled with experience, temperament and skill are the basis for creating an entity and entering this exciting new investment category.”
But Murphy also knows what makes players really tick. “For many it provides a highly anticipated adrenalin rush. Consequently, clients have the option to electronically view fund investments within minutes after game time via receipt of a text message.”
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Titan Sports Fund spokesman Dennis Tobler, with 40 years’ experience in the sports betting industry, bragged to Casino Player about the fund’s proprietary software as a key in its claim to reap profits betting with Nevada bookmakers.
However, Tobler insists on keeping his investors in the dark on game days. “I’m interested in dealing with clients who focus on ROI [return on investment]. The fund’s primary responsibility is delivering profits to its clients. Adequate information will be provided in the fund’s quarterly reports,” claims Tobler.
So you have your algorithms and fancy software, but where does the professional gambler get his or her edge? In the just released movie “The Best of It” a dark look at professional sports betting, legendary Vegas sharpie Lem Banker tells the story of his biggest win. On a certain boxing match he heard one of the fighters had a cut in his mouth. Banker bet on the other guy and even got word to the winner’s corner to keep punching to the mouth.
While it sounds different, there is no difference in knowing about a cut and knowing a thousand tendencies a boxer, athlete, or team may have, giving that gambler an edge over his competition.
Will Messrs. Bharara and Ceresney insist on calling this all insider trading? When it should be as Rothbard named it, free market capitalism.
As for Mr. Walters, the smart money has always been on him.
