1929 Stock Market Crash Insider Trading
During the Roaring ’20s, many Wall Street professionals, and even some of the general public, knew Wall Street was a rigged game with “Insider Trading” run by dominant investing pools. Suffering from a lack of disclosure and an epidemic of manipulative rumors, people believed coat tail investing and momentum investing were the only viable strategies for getting in on the profits.
Unfortunately, many investors found that the coat tails they were riding were actually smokescreens for hidden sell orders that left them holding the bag. Still, while the market kept going up and up, these setbacks were seen as a small price to pay in order to get in on the big game later on. In October, 1929, the big game was revealed to be yet another smokescreen.
After the crash, the public was hurt, angry, and hungry for vengeance. Albert H. Wiggin, the respected head of Chase National Bank, seemed an unlikely target until it was revealed that he shorted 40,000 shares of his own company – a serious conflict of interest.
Using wholly-owned family corporations to hide the trades, Wiggin built up a position that gave him a vested interest in running his company into the ground. There were no specific rules against shorting your own company in 1929, so Wiggin legally made $4 million from the 1929 crash and the shakeout of Chase stock that followed.
Not only was this legal at the time, but Wiggin had also accepted a $100,000 a year pension for life from the bank.
He later declined the pension when the public outcry grew too loud to ignore. Wiggin was not alone in his immoral conduct, and similar revelations led to a 1934 revision of the 1933 Securities Act that was much sterner toward insider trading. It was appropriately nicknamed the “Wiggin Act“.
Tags: 1933 Securities Act, Albert H Wiggin, Chase, Chase National Bank, Coat Tail Investing, Conflict of Interest, Holding the Bag, Insider Trading, Momentum Investing, October 1929, Pension, Public Outcry, Roaring 20s, Rumors, Sell Orders, Shorted, Wall Street, Wiggin Act