Jim Cramer’s Good Advice?17. May 2011 by Herman Brodie
Even those who are not fans of CNBC’s Jim Cramer cannot argue with his latest tip. If given a choice between making money and avoiding jail-time, argued the ‘Mad Money’ host, it is best to try and stay out of jail. His reflection was in response to the conviction of insider trader Raj Rajaratnam on 14 counts of conspiracy and securities fraud. Ex-post, it looks like the former hedge fund manager, who is now staring at 19 years in federal prison, made the wrong choice. However, ex-ante, this is not the choice insider traders face.
To begin with, even an unscrupulous fund manager will not begin his criminal career with a multi-million dollar scam. The slide into illicit behaviour typically begins with a small act and then grows. As the smaller misdeed attracted no jail-time, there is a tendency to believe that the next, larger one will not either. Furthermore, even though insider traders may know that their action is not strictly correct, the human mind has countless ways of downplaying the wrongdoing (e.g. through a twisted sense of entitlement) or the harm that it causes (e.g. the use of euphemism).
The prospect of jail-time only becomes a choice once the insider trader is caught, by which time it is too late. So, the advice Cramer should have given is: if the choice is between making money and avoiding anything even remotely illegal, then it is better to stay on the right side of the law. Good luck finding followers for that one, Jim.