Net Net: Promoting innovation and managing change
Net Net: Promoting innovation and managing change

The Dumbest Insider Trading Scheme Ever Alleged

Jon Schulte | E+ | Getty Images

This has to rank as the most stupid insider trading scheme ever alleged.

KPMG says that the partner in charge of the audit practice in its Los Angeles office leaked nonpublic information to a third party who used it to trade stocks. Herbalife was one of the companies said to be involved.

Is any company traded on U.S. markets more likely to be scrutinized by regulators?Herbalife has been accused of being a Ponzi scheme by Bill Ackman. Billionaire investors Dan Loeb and Carl Icahn have been publicly criticizing Ackman's trade. Federal authorities are watching this fight and Herbalife very closely.

Which means that anyone engaging in insider trading in Herbalife would be attempting to illegally profit right under the noses of the authorities. It's a bit like trying to rob the cash register of a bodega being raided by the police for being a drug-running front. It should at least occur to you to maybe pick another target.

Also, with all these heavyweights involved, the stock has volatility completely unrelated to its earnings. It can swing up and down regardless. So getting a bit of nonpublic information is unlikely to reliably produce gains. It's like trying to surf in a hurricane just because you know when high tide is supposed to be.

Of course, you shouldn't engage in insider trading, because it's illegal, unfair and demonstrates that you're kind of lousy at investing. But engaging in stupid insider trading? That shows you are among the dumbest of the dumb crooks out there.

Follow me on Twitter @Carney