Insider Trading: The Reunion Tour

It's hard not to imagine the pillow talk that went on between Randi Collotta, a former compliance officer for Morgan Stanley, and her husband Christopher Collotta.

The two are expected to plead guilty to insider trading charges in what prosecutors are calling the biggest scheme of its kind on Wall Street since the 1980s. Randi allegedly tipped off Christopher and others on pending deals Morgan Stanley had in the works.

In all, the authorities have charged 13 people in that particular scheme, which netted more than $15 million in illegal profits. One of them is Mitchel Guttenberg, an executive director for UBS's equity research department, who allegedly repaid a $25,000 loan from a trader with details on analyst ratings before they were made public.

And last week brought news of Hafiz Naseem, the young Credit Suisse banker who allegedly shared information on deals in the works with a Pakistani trader.

We're in the middle of merger madness, and it's raining money on Wall Street. But history tells us that the bigger the bonus checks, the greater the criminal caseloads for the prosecutors who chose public service over deal sheets and Greenwich mansions.

But it looks like the work has just begun for the Feds sniffing out the greediest of the greedy.

Bloomberg News reports that during the three days before the 17 biggest U.S. takeovers were announced in the past year, options trading jumped an average of 221 percent over their trading activity for the prior 50 days.

Most of the activity involved leveraged buyouts, and it's not shocking why. Bloomberg reports that at least 20 firms helped Apollo Management and TPG bid for Harrah's Entertainment last October. Volume in its options trading jumped 242 percent during the three days before the deal was announced.

When one company buys another, its options activity hardly changes. But the day before News Corp. announced a $5 billion bid for Dow Jones last week, volume in Dow Jones options surged to an 18-month high. The New York attorney general and the Securities and Exchange Commission are investigating the suspicious activity.

With so many people privy to deal-related information, from the mailroom workers to the graphic designers putting the PowerPoint presentations together to the bankers' spouses, this news shouldn't be surprising.

However, it does mean that the Collattas' pillow talk is likely just a molehill next to the mountain of illegal information sharing going on.

by Megan Barnett

Photograph of Christopher and Randi Collotta by Louis Lanzano/Associated Press