The First Insider Trading Scandal
In 1792, only a few years after America officially became a nation, it produced its first fraud. At this time, American bonds were like developing-world issues or junk bonds today - they fluctuated in value with every bit of news about the fortunes of the colonies that issued them. The trick of investing in such a volatile market was to be a step ahead of the news that would push a bond's value up or down.
Alexander Hamilton, secretary of the Treasury, began to restructure American finance by replacing outstanding bonds from various colonies with bonds from the U.S. bank. Consequently, big bond investors sought out people who had access to the Treasury to find out which bond issues Hamilton was going to replace.
William Duer, a member of Washington's inner circle and assistant secretary of the Treasury, was ideally placed to profit from insider information. Duer was privy to all the Treasury's actions and would tip off his friends and trade in his own portfolio before leaking select info to the public that he knew would drive up prices. Then Duer would simply sell for the easy profit. After years of this type of manipulation, even raiding Treasury funds to make larger bets, Duer left his post but kept his contacts inside. He continued to invest his own money as well as that of other investors in both debt issues and the stocks of banks popping up all over the country.
In 1792, only a few years after America officially became a nation, it produced its first fraud. At this time, American bonds were like developing-world issues or junk bonds today - they fluctuated in value with every bit of news about the fortunes of the colonies that issued them. The trick of investing in such a volatile market was to be a step ahead of the news that would push a bond's value up or down.
Alexander Hamilton, secretary of the Treasury, began to restructure American finance by replacing outstanding bonds from various colonies with bonds from the U.S. bank. Consequently, big bond investors sought out people who had access to the Treasury to find out which bond issues Hamilton was going to replace.
William Duer, a member of Washington's inner circle and assistant secretary of the Treasury, was ideally placed to profit from insider information. Duer was privy to all the Treasury's actions and would tip off his friends and trade in his own portfolio before leaking select info to the public that he knew would drive up prices. Then Duer would simply sell for the easy profit. After years of this type of manipulation, even raiding Treasury funds to make larger bets, Duer left his post but kept his contacts inside. He continued to invest his own money as well as that of other investors in both debt issues and the stocks of banks popping up all over the country.


































