Posted by Larry Doyle on January 17, 2010 7:45 AM |

Editor’s Note: Please see LD’s update to this fascinating story just published on Tuesday evening February 2nd at 10:02 PM.

With friends like these, who needs enemies?

I have written previously on the importance of strong relationships while working on Wall Street. While the Wall Street numbers and dollars are voluminous, ultimately Wall Street is a ‘people business.’

I have also written previously how ‘information is everything’ on Wall Street. Traders work tirelessly to determine what is moving or what will move the market. Utilizing this information, millions of dollars can be made or lost in the course of a very short time span.

Combining these two critically important factors, it should be no surprise how some will use – but then abuse – these two primary cornerstones of our financial industry.

Folllowing this line of reasoning, are you ever shocked when a guy who cheats on his wife also then cheats on his girlfriend? Where am I going with this? Let’s enter the world of David Slaine, the government’s mole in the insider trading scandal currently rocking Wall Street.

I will profess, I am truly shocked this morning reading how Slaine’s identity and story are reported in The Wall Street Journal’s Wired on Wall Street: Trader Betrays a Friend:

For more than a year, Mr. Slaine, a senior Wall Street trader, was a government mole who wore a wire strapped to his torso, helping prosecutors to build the biggest insider-trading case in two decades. Using extensive contacts developed over a 27-year Wall Street career, Mr. Slaine has provided leads on possible insider trading by others not yet implicated in a sprawling case involving hedge fund Galleon Group, people familiar with the matter say. That case has rocked Wall Street and Silicon Valley and raised questions about the integrity of the nation’s financial markets. Mr. Slaine’s identity as an informant is being revealed by The Wall Street Journal for the first time. In a brief telephone interview Thursday night, Mr. Slaine said: “You got the wrong guy.” He said he has “nothing to do with that case.” He declined to provide a lawyer’s name. A criminal complaint filed in a New York federal court in November describes in detail the involvement of a cooperating source dubbed “CS-1.” The Wall Street Journal has confirmed that Mr. Slaine is that cooperating source. This story of his involvement in the case was pieced together from information contained in the complaint and from interviews with Wall Street traders, lawyers and government officials involved the case. Mr. Slaine’s saga demonstrates how the U.S. has used Wall Street players to go undercover and turn on their colleagues. Mr. Slaine, 50 years old, has told prosecutors, among other things, that his friend and weight-lifting partner, Craig Drimal, traded on inside information. In November, Mr. Drimal was arrested at his Weston, Conn., home. Mr. Drimal declined to comment.

The insider trading scandal and investigation is unique in the fact that informants like Slaine are wearing a wire to collect information and implicate co-conspirators. That said, why is The Wall Street Journal revealing Slaine’s identity and story at this point? Is the government sacrificing his identity in order to send a message to others within the industry or did the WSJ actually compromise the investigation with this story?

Do you think Slaine will be looking over his back? Do you think others within the industry are now wondering who else is wearing a wire?

Keep your friends close and your enemies closer.

LD