A new report from Credit Derivatives Research suggests that derivatives traders are getting inside information and acting on it. Four of the five biggest LBOs this year have seen big pre-announcement jumps in credit-default swaps, reports Bloomberg.

Add to that the fact that Harrah’s default swaps also jumped and it would seem like irrefutable evidence. The swaps are an informal insurance against default and the debt created by an LBO automatically pushes the bonds into dangerous territory.

“Evidence shows that CDS prices are widening before public rumor or news,”  CDR Strategist Tim Backshall tells the news service. “Whether it’s insider trading or more informed selling is unclear. That could simply be a reflection of smart players in the market buying protection.”

Some of the companies were plausible targets but Freescale Semiconductor and Harrah’s were not. The answer is (as it is with options contracts that are out of the money) that people in the office of advisory firms and law firms get the word and have figured out that these instruments are much less likely to be traced by investigators than buying a lot of stock and flipping it. Then the SEC’s computers will probably find you.

It would be nice to get rid of this kind of profiteering but it’s highly unlikely given the way that SOX regulation is set to be scaled back. Any real regulation would make dealmaking impossible.

In any case, the Government Accountability Office is set to put the SEC under a microscope after questions were raised about its performance in the investigation of Pequot Capital Management, reports the New York Times. A staffer was fired when he complained about being barred from interviewing witnesses he thought had relevant information. Just happened to be John Mack, who is now the chief at Morgan Stanley. Of course, the report won’t come out until next year.