Charles Gasparino, Harper Business, 369 pages, $28.99
While the markets were coming undone in 2008, securities regulators and law-enforcement types were busy.
The problem, says Charles Gasparino, is that they were investigating the wrong thing. Instead of digging into the fraud that helped fuel the crisis, they were on a crusade to clean up an epidemic of insider trading.
"Circle of Friends" tells the story of lying, cheating hedge funders who broke the law so regularly they couldn't imagine they would ever get caught.
We get all the elements of the insider-trading genre: the bundles of cash (stuffed in Doritos bags), the informants wired by the FBI, the bickering regulators who pout if the media's latest puff piece focuses on someone else's agency.
But while regulators view insider trading as "the white-collar crime of the century," according to Gasparino, he argues that it doesn't directly harm investors the way Ponzi schemes, mortgage fraud and reckless risk-taking by banks do.
Gasparino offers an explanation for the insider-trading obsession: Several unnamed career prosecutors told him the government needed a white-collar scandal to "satisfy the public's demand for Wall Street scalps" after the crisis.
Never mind that insider trading played no noteworthy role in the debacle that almost brought the economy down. Most perpetrators of the financial crisis still roam free.
The book has some lazy writing and sloppy errors — a last name spelled three different ways and the date of a court order to wiretap Rajaratnam's phone noted as March 7, 2008, in one place, March 10 in another.
Still, "Circle of Friends" is an insightful recap of how we got to the place where insider trading became the favorite target of regulators, and is a good guide on where it all goes from here as investigators continue to pursue SAC Capital Advisors' Steven A. Cohen.
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