Book review: Circle of Friends – Charlie Gasparino

During a short holiday break I read that book. It is written by Charlie Gasparino, a quite famous Wall Street reporter.

The book is about the recently uncovered insider trading activity including among others, the infamous Galleon founder Raj Rajaratnam and many people connected with Steve Cohen’s SAC capital.

Those insider cases have been the biggest since Ivan Boesky in the 80ties and many people went to jail. Some trades were “simple” insider tips, others were conducted much more clever via so-called “expert networks”.

The book itself is strong on details about the lw enforcement process. It reads rather like a crime investigation story than a finance book. The author also shows a little bit the history of insider trading which was not illegal until the great depression.

The author several times calls insider trading the “victimless crime”and one does get the impression that he doesn’t consider it such a serious crime. He also stresses that the strict enforcement in these cases might have something to do with both, the financial crisis and the Bernie Madoff crime and the desire to please the public with some high-profile arrests.

Although I agree that a lot of criminal transaction before or during the financial crisis have not been really prosecuted (John Corzine, Dick Fuld etc.), I do not think that insider trading is a victimless crime. Victims are clearly many retail investors esp. mutual fund investors. Although insider trading might nt explain everything, a part of the fact that so many mutual funds underperform might lie in the lack of insider trading compared to unregulated hedge funds.

As a summary I would say the book is not bad but not half as well written as for instance a Michael Lewis book. If you are really interested in how the SEC examines insider trading, you might buy it, otherwise save the money for the next Michael Lewis book.

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