http://www.nytimes.com/2007/03/02/business/02inside.1.html?_r=1&oref=slogin

http://www.time.com/time/nation/article/0,8599,1595967,00.html

In the first week of March, the Securities and Exchange Commission (SEC)
accused 14 people of taking part in a huge inside trading ring, allegedly
making illicit profits totaling $15 million. The 14 defendants supposedly
used information stolen from UBS Securities LLC and Morgan Stanley & Co.,
Inc. Both links are about the same ordeal, but there are some points that
are not overlapping between the articles, and so reading both will offer a
fairly clear picture.

The second link explains that the initial investigation began in response
to suspicious high-volume trading prior to the acquisition of Catellas
Development.  The investigation led to Eric Franklin, who has worked at
several hedge funds in the past few years.  The first link, however,
mentions that Franklin was actually tipped off by Mitchel S. Guttenberg,
an executive director in the stock research department of UBS. The trading
scheme had begun in 2001, when Guttenberg had gotten a hold of private
information about upcoming upgrades and downgrades of stocks. But the
information did not stay between only those two men. They each tipped off
other people, and a complex network of insider traders formed. But
eventually it all came to an end, thanks to the idea of networks.

As I’ve said before, there are two links covering the same story, but they
each have good points. Namely, both incorporate the idea of social
networks. In the first link, there is a description of the spread of
information between networks of tippees. This brings to mind Revere’s word
of mouth that the British were coming.  In the second article, there is
not much of a mention of the network of tippees, but it does mention
another network of people that are not at the moment accused of insider
trading. This network consists of “family members, friends, college
roommates and other social acquaintances.” The SEC plans to investigate
individuals within this network to extract more information.

The power of networks can be seen in such an example of an insider trading
bust. It is possible to imagine that Guttenberg and Franklin could have
gotten away with insider trading, if they were the only two involved.
However, by tipping others, and thus creating a larger, traceable network,
they were eventually busted. As for the network of individuals having
connections to the actual, formally accused defendants, this network can
be used to gather more information (and evidence) against the accused.
Even though Guttenberg and Franklin had “used disposable cellphones and
secret codes to try and cover up their activities,” it was evidently of no
avail. They should have worried more about the large network of tippes
that they were creating. As a moral, it can be seen that if you are going
to commit a crime, there’s a higher chance of getting caught if more
people are involved. Large networks can mean big trouble here.