The Globe & Mail article was clear:

They spoke in code, on hard-to-trace prepaid cellphones.  They adopted nicknames like "The Greek."  And they made secret drops of bags of cash on busy Manhattan streets.

U.S. prosecutors charged 14 people, including prominent Wall Street lawyers and traders, with conspiracy and fraud yesterday in a dramatic widening of an insider trading case that has already implicated top hedge fund managers and Silicon Valley executives.

The amounts of money are large, with many transactions in the millions of dollars.  What were they doing?  What was their secret to beating the market?  Simple, they were trading shares on advance news of major changes such as company take overs.

When one company puts out an offer for another, it typically pays a higher price than the current market value of the company as an inducement for existing shareholders to sell.  As soon as the offer becomes public, the target company's share price will rise to the price bid.  That means if you have advance knowledge of the offer, you can buy the target company's shares before the offer is made public and make a quick buck.

Deals of this nature are complex.  The target company has to be valued, which is difficult in itself.  The bid has to be carefully drafted to make sure it conforms with all of the regulations.  This means that a large number of people, such as the company's management, lawyers, accountants and stock brokers, have to be let into the secret.

With so much money at stake, there is a powerful incentive to cheat and purchase the shares in advance of the news going public.  At the same time, every share purchase leaves a trail.  If you have advance knowledge of the transaction, you are called an insider and you are not allowed to benefit from that knowledge, so why not secretly tell a friend and then share the profit quietly afterward?  That's what this scandal is all about.

Clearly, the first ones to act on the insider news are the winners.  They buy the stock cheap and sell it when it hits the bid price.

The losers are the ones who hear the rumor later, see that the stock price has jumped and think that it is going to continue rising.  Let's be clear:  the winners are the investment insiders and the losers are the general public.

The lesson:  if you want to beat the stock market, don't play the rumors game.  It's a sucker's game and they are playing you for a sucker.

The way to win is to pick good quality companies and hold them for a long time.  You save on the commissions made by the advisors who are constantly telling you to buy and sell, chasing this or that rumor.  Your gains may not be spectacular, but neither will you losses.

Even this strategy has risk in it.  Bad things can happen to good companies, driving their stock price down.  But if you know a company well, you have an idea of whether the bad news that just affected the price is short term or not.  In other words, bad news can be a buying opportunity if you think the company will weather the storm and emerge a better company afterward.

The only people who can beat the market are those who cheat.  Don't be one of the victims.