Insider Trading: A Crime for the Smart and Dumb, High and Low

The term insider trading conjures up images of sophisticated Wall Streeters or "expert networks" engaged in complex white collar crimes and pocketing millions. But often that is not the reality, and a surprising number of insider trading cases involve lower level people trying to make a few quick bucks. After all, insider trading is actually not so complicated: If you know something about earnings before the stock market does, you do pretty well.

Some of those snared in insider trading cases are, in fact, the antithesis of savvy high-rollers. They are morons at the bottom of the food chain. Fortunately, judges are smart enough to go easy on these people. Consider the case of Bonnie Hoxie. As reported in the Wall Street Journal:

A former Walt Disney Co. administrative assistant was sentenced to four months home detention Tuesday after admitting last year to engaging in a scheme to sell early access to the entertainment company's earnings.

Federal prosecutors in Manhattan alleged that Bonnie Hoxie, the former assistant to Disney's head of communications, gave her then-boyfriend Yonni Sebbag information about Disney's upcoming results before their public announcement last spring.

Mr. Sebbag then contacted dozens of hedge funds and investment companies anonymously last March in an amateurish insider-trading plot, offering to provide an early glimpse of Disney's results, prosecutors said.

"I trusted someone who I was not only romantically involved with, but also was a close confident of for over eight years," Ms. Hoxie said Tuesday. "I was blindsided by love in not making the correct choices."

Home detention sounds like the right punishment to me, even though I'm usually calling for tougher sentences.

And what happened to the boyfriend? Yonni Sebbag was sentenced to 27 months. That seems pretty harsh, but perhaps the judge slapped him with extra time for his stupidity. Consider these details from the case about how genuis Yonni marketed the info that Bonnie got:

A form letter was sent last March to more than 30 investment companies, offering access to Disney's earnings before their release last May and giving the companies a Gmail address to respond to, prosecutors said.

Federal Bureau of Investigation agents then began corresponding with Mr. Sebbag by email, posing as hedge-fund traders, prosecutors said. Mr. Sebbag agreed to share the inside information for $15,000 in cash, prosecutors said.

Mr. Sebbag was the "primary leader of this conspiracy," Assistant U.S. Attorney Julian Moore said Tuesday.

Three days before the release of earnings, Mr. Sebbag allegedly emailed a copy of "speaking points" related to the company's fiscal 2010 second-quarter earnings, prosecutors said.

I respect the feds who are busting insider traders. But calling Yonni Sebbag the "primary leader" of a "conspiracy?" Come on, now. Bonnie and Yonni sounds more like a Vegas act than a conspiracy.

If you want to know more about how two not-so-bright ordinary people with no criminal past can end up in a lot trouble, check out the details of Sebbag and Hoxie case in the SEC complaint below.

SEC Complaint Against Bonnie Hoxie and Yonni Sebbag