| The benefits of front-running usually tend to be very transient. Placing a trade just before a large order, as opposed to after, will give you a short-term pop. The way to make money when front-running is to buy early, wait for the pop, then sell immediately. The longer you hold on, the less of an impact that pop will have on your gains. Company fundamentals and market forces will overwhelm any short-term pop in the long run. Especially so for highly liquid stocks like VMWare where the decisions made by individual funds have a smaller impact on the stock price. I'm saying all this because the guy was buying and holding for many years. He held on to VMWare for 4 years. And NetApp for over 2 years. At those timescales, the vast majority of your returns are independent of your decision to front-run the trade. It does seem very coincidental that he bought and sold just before/during his fund's trades. But consider another possibility. He does a lot of active trading - the article mentions that most of his trades are unrelated to his fund's trades. On one of those occasions, he thought VMWare was a good buy, and so, bought the stock for himself. He's also on the fund's investment committee, where his job is to help the fund make good investment decisions. Unsurprisingly, he pitched VMWare as a good buy... because that's what he genuinely believes. The committee agreed with him, and bought the stock. 4 years go by, and he thinks VMWare is no longer a good stock to hold. Hence, he sells his holdings. As part of the fund's investment committee, he also expresses his genuine belief that holding VMWare would not be a good decision at this time. The committee agrees with him, and decides to sell the fund's VMWare holdings. All of the above seems extremely plausible and above-board. I don't know the exact details of the case, so I'm not claiming the guy is innocent. But the information given in the article isn't as damning as it's presented to be. I'm just glad we have a criminal justice system to try cases like these, as opposed to a media witch-hunt |