Confessions from a Wall Street Insider: The Real Lessons to be Learned

Michael Kimelman was an alcoholic who got himself indicted, tried and convicted of insider trading.  After his jail term ended and his family had been reduced to near penury, he just couldn’t believe that his wife wanted a divorce.  In his own mind, he was definitely the wronged party in the marriage.

Kimelman’s inability to see any perspective but his own self-serving one tells you much of what you need to know about his book, Confessions of a Wall Street Insider: A Cautionary Tale of Rats, Feds, and Banksters (2017).  One can accept the claim that Kimelman was the smallest of the fish caught up in the prosecutor’s net when an insider trading ring was busted without giving him the absolution he seeks in this book.

Kimelman is a walking advertisement for Ethics Unwrapped videos.  He needs to view them in the worst way.

He should watch the videos on the Self-serving Bias, because he collects, processes and remembers nearly every fact in a self-serving way.  His description of his marriage, noted above, is a classic example but the same may be said regarding his recounting of his professional life.

He should watch the videos on framing.  Every discussion of his work life in the book is about making money.  Morality is absent.  This framing makes clear how Kimelman viewed the world and therefore explains the decisions that he made.

He should watch the videos on the conformity bias.  According to Kimelman, everybody on Wall Street engages in insider trading and always has, so he is blameless because he is doing what everyone else does.

He should watch our videos on the tangible & abstract.  His total focus was on raising capital for his proprietary trading fund.  That is what he concentrated on every day.  It was tangible and immediate for him.  On the other hand, because Kimelman did not know the names of, and could not see the faces of, the people who were selling shares while he was buying them based on inside information to which they had no access, their losses had no impact on him.

Kimelman should watch our video on moral imagination.  If he had any, he would realize that insider trading has far-reaching consequences.  The evidence is strong that insider trading undermines trust which, in turn, is correlated with damages to stock markets and retarded economic growth.

He should watch our videos on incrementalism.  The evidence indicates that people who work in the financial industry, like Kimelman, do often see a lot of wrongdoing, like insider trading.  Over time, they become inured to the sleazy practices and because of the slippery slope they just don’t seem wrong anymore.

He should watch our videos on moral equilibrium.  His prison sentence has, at least, motivated him to engage in a little moral compensation by volunteering at some charities now that he is out of prison.

Kimelman should watch our videos on rationalizations because his excuses illustrate many of the most common categories of rationalizations as characterized by Anand and colleagues.

Denial of Responsibility.  According to Kimelman, he is an innocent man in part because the real responsibility for the trading he was involved lay with Zvi Goffer, a business partner.  Admittedly, Zvi appears to have been a real piece of work.

Denial of Injury.  As noted earlier, because of his inability to imagine the damage he did to abstract but nonetheless real victims and his contribution to undermining the integrity of the stock markets, Kimelman views insider trading as a victimless crime, a mere “technical violation,” and “the financial equivalent of jaywalking.”  But, to repeat, the evidence is clear that there is a strong correlation across nations between enforcement of insider trading laws and economic development.

Condemn the Condemnor.  Like many wrongdoers, Kimelman believes that those persecuting him are the real bad guys who have no right to criticize him. In Kimelman’s view, he was the victim and the SEC and the prosecutors in his case were the real scum bags.  As was the judge, who is painted as incompetent and heartless.  As we learn in the Epilogue and a following Publisher’s note, Kimelman’s conviction is certain to be vacated on appeal because Judge Sullivan read U.S. v. Newman too narrowly.  The book’s last line (in a Publisher’s Note)—“We believe Judge Sullivan’s opinion is biased, inaccurate, and shall be exposed as such and vacated on appeal.”—has run up against the small problem that since the book was published the Supreme Court has rejected much of the reasoning of U.S. v. Newman, leaving Kimelman on the wrong side of history and Judge Sullivan looking prescient rather than biased.

Selective Comparison.  In Kimelman’s view, insider traders are practically angels compared to the big banks that brought on the financial crisis in 2007 and 2008, nearly sinking the world economy.  While it may be similarly true that murder is worse than bank robbery, it does not mean we should not punish bank robbers.

Metaphor of the Ledger.  In Kimelman’s mind, his very, very hard work and impressive success, along with the hefty taxes he paid and his generous contributions to charities seem to justify cutting a few moral corners here and there.

All this said, Kimelman is obviously terrifically smart, creative, and a talented writer.  He might even be innocent, though this book is not very persuasive in that regard, especially when compared to the Second Circuit’s opinion rejecting his appeal and Judge Sullivan’s extensive opinion on remand.

 

References

Vikas Anand et al., Business as Usual: The Acceptance and Perpetuation of Corruption in Organizations, 19 Acad. Mgmt. Exec. 9, 11 (2005).

Michael Kimelman, Confessions of a Wall Street Insider: A Cautionary Tale of Rats, Feds, and Banksters (2017).

Frank B. Cross & Robert A. Prentice, The Economic Value of Securities Regulation, 28 Cardozo Law Review 333-389 (2006).

Robert A. Prentice & Dain C. Donelson, Insider Trading as a Signaling Device, 47 American Business Law Journal 1-73 (2010)

Salman v. U.S., 137 S.Ct. 420 (2016).

U.S. v. Goffer, 2017 U.S. Dist. LEXIS 6410 (S.D.N.Y. 2017).

U.S. v. Goffer, 721 F.3d 113 (2d Cir. 2013).

U.S. v. Newman, 773 F.3d 438 (2d Cir. 2014).

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