The Scoop on Insider Trading

A wave of fraud cases hits Wall Street. What it means to you.

A billionaire hedge fund manager is found guilty of 14 federal charges stemming from a massive insider trading scheme that prosecutors said netted $63 million. Galleon Group founder Raj Rajaratnam, who will appeal the verdict, was one of 26 criminal defendants in the case, 21 of whom have pleaded guilty. In another case, a ring of tech-company workers moonlighting as consultants, along with hedge fund managers and analysts, face charges of trading on inside info about Seagate Technology, Advanced Micro Devices and other firms. Meanwhile, a merger-and-acquisitions lawyer, a trader and their mutual friend are accused of netting $32 million over 17 years on takeover tips.

Not even the Oracle of Omaha can escape the taint of insider dealings. A Berkshire Hathaway exec (who has not been charged with insider trading) resigned after he raised eyebrows by purchasing shares of Lubrizol Corp. right before Warren Buffett bought in.Investors may be forgiven for feeling outmaneuvered. More than 50 people have faced criminal charges of insider trading since the summer of 2009. The Securities and Exchange Commission, which brings civil-law versions of the cases, has announced 30-plus cases in fiscal 2011, beginning last October, on top of 53 cases in fiscal 2010 and 37 the year before that. But it's the kinds of cases and how they're brought that's significant. Instead of the one-off friends-and-family shenanigans that typify insider-trading cases, the focus is on organized secret-swapping among a new generation of market pros.

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Anne Kates Smith
Executive Editor, Kiplinger's Personal Finance

Anne Kates Smith brings Wall Street to Main Street, with decades of experience covering investments and personal finance for real people trying to navigate fast-changing markets, preserve financial security or plan for the future. She oversees the magazine's investing coverage,  authors Kiplinger’s biannual stock-market outlooks and writes the "Your Mind and Your Money" column, a take on behavioral finance and how investors can get out of their own way. Smith began her journalism career as a writer and columnist for USA Today. Prior to joining Kiplinger, she was a senior editor at U.S. News & World Report and a contributing columnist for TheStreet. Smith is a graduate of St. John's College in Annapolis, Md., the third-oldest college in America.