Doctoral Dissertation Research: The Rise of an Insider Trading Network, 1979-1986: A Network Analysis

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Focusing on the phenomenon of insider trading in the U.S. during the period from 1979-1986, this project examines the utility of theories of criminology and social networks to develop a model of how the dynamics of a legitimate business network might differ from an illegitimate network embedded within it. Learning theories (differential association, differential opportunity) tend to forget that subcultures can and do develop within upper class elites. The solution lies in theory building that includes formation of social networks within an elite class, in this case financial bankers, and the effects of environmental opportunities (deregulation) on the network characteristics of trust and embeddedness. The dependent variable of this study is the changing structure of the deviant network based on the degree of embeddedness and trust, under the conditions of the independent variables of micro and macro environmental factors, including SEC deregulation. Hypotheses include embeddedness, a network concept based on the degree of redundancy of ties; trust which is defined by the reciprocity of trust as well as clique formation and opportunity based on the rate of tie formation dependent on deregulation. The expectation is that there will be more tie formation activity within the illegal network as compared to the larger, legitimate network. N is approximated to be 125 actors in the legitimate network, 15 in the illegitimate network. Research methods include profiling the network actors for religion and educational background, network interview of SEC elites employed in the 1980s, secondary content analysis of SEC investigations (1979-1986) and secondary content analysis of Stewart's (1992) chronology of the illegal trading activities in the 1980s triangulated with other journalistic sources such as The Wall Street Journal. Additional procedures include the creation of matrices of legitimate and illegitimate networks to test the variability of the networks as well as to conduct network regression (QAP) to determine if there is any relationship between embeddedness, trust, and opportunity from year to year. It is anticipated that this dissertation will offer several benefits to the scientific community and policy makers by including the understanding of how deviance is not a solitary occupation but takes place within networks and overtime. Additional benefits to the scientific community are 1) introduction of network analysis to criminology and 2) further understanding of how networks do not operate within a structural void, rather are regulated by internal and external characteristics. Finally, there is optimism that with the completion of this study, there is the potential to contribute to policy making in the form of preventative and predictive capacity to aid in the control of insider trading.