Does insider trading still exist? Yes. 1,000%

"Insider trading used to be so easy," a hedge-fund trader of 15 years said. "The days of getting a wink of an upgrade, a nod of an eminent takeover or a fast call to front-run sizable order flow are a thing of the past. These days you have to be much more sophisticated."

I called around to some trader friends to find out how the landscape of insider trading has changed since I was on Wall Street. The overwhelming consensus was that a lot has changed.

One source told me that Steve Cohen's Point72 is leading the way to ensure that the sell side doesn't put them in jeopardy. They've instructed all research coverage to not call them until a report has been officially published. And other hedge funds are following suit. This never used to be the case. While I was at the Galleon Group, we'd inculcate the idea that if a research report had already been published, even 30 seconds ago, it was considered old news. We didn't want that call.

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A lot of guys who were operating in gray areas five years ago have now joined forces with the "good guys." The consequences of even being associated with insider trading are now far too great.

"Those who were compliant are more compliant," a hedge fund compliance officer told me. "The majority of firms are very diligent with prohibiting the practice of insider trading. It's always an ongoing conversation at our shop."

He went on to say that there's always the distress of a rogue employee and the difficulties associated with policing them. "It's almost impossible to guarantee that no employee will act in this manner, but at the end of the day it starts at the top."

Translation: The chances of a hedge fund being dragged through the courts is dramatically limited if senior management sets the ideology of the firm.

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So, does insider trading still happen on Wall Street?

"One thousand percent," one equity analyst said. "The game has changed, but you're kidding yourself if you don't think it's still happening. But from what I hear, the FBI and other regulators aren't done either. More to be revealed, I guess."

There are still plenty who continue to try and cheat the system. And it primarily seems to be based on the fact that the largest firms with the highest returns are a magnet for institutional money. Guys want that money. And there's no shortage of fund managers who are willing to cut corners to be part of that fraternity.

The day Raj Rajaratnam was arrested was a seminal moment for all of Wall Street. The entire industry and a decent population of the rest of the world watched as the FBI paraded the Galleon Group founder past the flashing bulbs and television cameras — also known as the perp walk. And in many eyes he was already guilty.

During the two-year saga of arrest-trial-conviction of Rajaratnam, everyone was on high alert. Compliance offices increased staffing, speaking to legal counsel before trading became commonplace and making all employees understand exactly what constitutes insider trading was now protocol for most hedge funds. And everyone realized that even a hint of a regulatory investigation into a firm's trading practices meant having the manager's face chiseled next to Rajaratnam on the Mt. Rushmore of insider trading. And nobody wanted that.

The media coverage that followed into the high-profile cases of Diamondback Capital Management and SAC Capital Markets allowed for a sustainable deterrent against such illegal practices. The fear and ambiguity of what was unlawful only helped clean up the business. There was a universal mentality forming within the industry: It's not worth it.

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But the momentum was slowed by the U.S. Court of Appeals' decision to overturn government convictions for hedge-fund managers Todd Newman and Anthony Chiasson on insider trading in 2014. Regardless of which side of the case you fall on, you have to admit that it created a chink in the government's armor. The ruling stated that an individual must definitely know that an insider is improperly providing confidential information for their own personal gain. And this, in the eyes of many hedge funders, is extremely hard to prove in a court of law, especially if certain parameters are set up beforehand.

Is it possible to set up a dynamic where you can get a competitive edge and still be compliant in the letter of the law? Those who play it fast and loose are trying. They want to check the information box, but leave the "knowing an insider improperly" and the informant's "personal gain" boxes unchecked.

The inside scoop is that insider trading still exists — it's just much more sophisticated. There's still plenty of fear out there. Most people have a friend or a friend of a friend who got pinched. The memories of sniffing dogs and perp walks aren't lost on anyone, but sometimes the temptation is too great. Inside the mind of an insider trader — they just have to do it better.

Commentary by Turney Duff, a former trader at the hedge fund Galleon Group. Duff chronicled the spectacular rise and fall of his career on Wall Street in the book, "The Buy Side." He was also a consultant on the Showtime show, "Billions," starring Damian Lewis and Paul Giamatti. Follow him on Twitter @turneyduff.

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