One of the hedge fund guys told me that what they were doing only hurts HFT since market makers take the other side of their trade. True or false?
False, it hurts everyone else that didn't have that information. Essentially, it's stealing from the public.
False. Insider trading hurts everyone but the insider trader. The illicit profit they make comes from someone else's pocket. Identifying exactly who's been hurt, and by how much, is difficult. But you'd better believe that it's not primarily HFT, since HFT's simply adjust their algorithms to the cost of everyone else, e.g. by widening the spread if they're market-making. (In fact they've already done this -- the very existence of insider trading increases spread costs every day.) People (including some smart ones) have come up with convoluted justifications for why insider trading isn't bad. They're all wrong -- in every case, they've suffered a major brain fart, and it's usually not hard to identify -- typically, they're not following the money. This really comes down to, "does someone with privileged inside information deserve to take money from everyone else by using that information?" For example, does a lawyer who's working on a takeover deserve to rip off their own clients buy buying the target before anyone else knows, thereby inflating the takeover price their client must pay? I think most people would say, "no" (except maybe the lawyer!).
True, there's so much unfairness and corruption in this world that one isn't any worse than the other.
There are reasonable explanations for why insider trading might not be as bad as one would think. Yours isn't one of them!