If you ever thought Wall Street was a conspiracy against the rest of us, you might find some joy in this report. The Securities and Exchange Commission is examing trading patterns at the end of the third quarter to see if there is a pattern of tipping and insider trading among the major clients of securities firms, reports the New York Times. The request for documentation will drag in all trades for major hedge funds and mutual funds in an attempt to establish that pattern of insider trading.

Good luck with that search! We’re sure some, maybe even lots, of that insider trading goes on but detecting and prosecuting it is the really tough part. The new wrinkle in all this, reports the paper, is that big clients can be tipped off and then go to another bank to make the trade. That makes it much more difficult to follow the paper trail but the SEC is hoping that it can connect the dots with enough paper …

If the hedge funds are the winners, the rest of us with 401(k) accounts invested in mutual funds are the losers. The banks tip their big friends about a coming trade and they, in turn, can short the stock before the big mutual fund trade goes through. That means, your account and mine won’t get the full benefit of the trade.

There are, as the paper notes, already documented cases of inside information moving other markets. Some people were, for example, clearly aware that Harrah’s was about to be bought before the deal was announced. It’s options were being bought well above the market rate and the only thing that would have made them valuable was the buyout deal. When Harrah’s credit default swaps also blew out, anticipating the huge debt the deal would add is the only explanation that made sense for moving that market.

So, can the SEC get rid of insider information? Probably not. But it will have to try real hard to make sure that it’s kept as much to the margins as possible and that includes trying to put the fear of God into traders who might think that their inside information is too good to waste. After all, murder and robbery are inevitable but good policing can reduce the amount of crime.