Insider Trading - Should It Be Legalized?

When assessing the economic damage to due to Paul Thayer and those that he tipped off about the acquisition of Campbell Taggart, it should be noted that some argue that this kind of insider trading circulates information and forces the stock to its “true value.” If we assume this argument to be flawed, then part of Anheuser-Busch stock dip after the announcement was due to the insider trading and the fact Anheuser-Busch probably paid more to acquire its target. Thayer and his friends trade the Campbell stock for nearly a month before any public announcement of the merger. On July 27 nearly half the volume was insider volume controlled by those individuals who were in violation of rule 14(e)-3 (See exhibit 2). The increased volume might

SEC alleged that Mark Cuban violated misappropriate insider trading. To be qualified as misappropriate insider trading, an individual wrongfully obtains (misappropriates) inside information and trades on it for her or his personal benefit. In this case, Cuban actually traded his shares based on the material inside information he was told and saved him $750,000 in losses. Wrongful misappropriation means violation of a fiduciary duty.

Insider trading is the trading of a public company's stock or other securities (such as bonds or stock options) by individuals with access to nonpublic information about the company. In various countries, trading based on insider information is illegal. A great example for that is when “R. Foster Winans: The Corruptible Columnist Although not high-ranking in terms of dollars, the case of Wall Street Journal columnist R. Foster Winans is a landmark case for its curious outcome. Winans wrote the "Heard on the Street" column profiling a certain stock. The stocks featured in the column often went up or down according to Winans' opinion. Winans leaked the contents of his column to a group of stockbrokers, who used the tip to take up positions in

Insider trading – insider trading is the trading of a corporation’s stock or other securities by individuals with potential access to non-public information about the

With the Martha Stewart scandal her actions initially saved her $45,673 but in the end did it really help? She ended up serving less than a year in prison and was fined $250,000. In hind sight she ended up losing a lot more money from selling the stocks and lying about it then if she would have just kept the stocks and took the hit when ImClone’s value fell. But selling stocks based on inside information so you’re sure you don’t lose money in an investment; doesn’t that seem like the right thing to do? No one ever wants to lose money especially in an investment, but avoiding a loss by selling stock the way Martha Stewart did is considered illegal. Having inside knowledge of a company and using that knowledge to make moves before the market price changes at that time probably seemed like a great idea but is profoundly illegal and known as inside trading. Martha Stewart was and is a well-known business woman and at that time served as President, CEO and chairwoman of her publicly traded company. She was educated and knowledgeable about what is allowed or not allowed as far as selling, buying and trading stocks. Her understanding of SEC regulations is especially disconcerting since she had been a part of the board of directors of the New York Stock Exchange. Martha was aware of the consequences that came with breaking the rules. Not only did she participate in insider trading and benefited from it but she also tried to cover it up claiming she and her stock broker

The argument that I am making should be addressed to Baconivic and the people that agree with his business ethics. Instead of having a Carr mindset, I have more of a Drucker mindset. With my Drucker mindset, I would address Baconivic and these people about how spreading insider information to only a select few is against the law and how it could ruin their image as people in the working field. No matter whether you are a senior broker or assistant, ruining your image in the working field does no good to anyone. All their hard work up to that point will diminish and trying to gain back a good reputation will be difficult. As many parents tell their children, Baconivic and his supporters should put themselves in the shoes of other shareholders that will fairly lose money from their investments in the ImClone company. By doing so, they will be able to mentally see and feel the loss that happens through stocks. Instead of trying to give certain people unfair advantages, higher authoritative positions in companies should be more ethical and try to give reassurance that the stocks will raise

Looking at the case of the United States v. O’Hagan, 521 U. S. 642-652 (1997) it points out how fraud and how O’Hagan violated § 10(b) of the Security Exchange Act of 1934 and the SEC Rule 10b-5 by allowing misappropriate trading practices. With O’Hagan breaking the rules it leads to direct consequences of all the laws that are governed by the SEC which they often persecute whoever should break them. It also gives us knowledge on why those rules are important and need to abide by them. Rule 14e-3(a) is something that also gives important information on how insider trading is supposed to by introduce within the business world. Rule 14e-3(a) forbids anyone to trade based on material, nonpublic information that concerns a tender offer and that the person knows or should know that it has been acquired by an insider of the offeror or issuer, or someone working their behalf, unless within a reasonable time before any purchase or sale such material and it source are publicly disclosed (United States v. O'Hagan, 521 U.S. 642

Observations About Equal Justice In The U.S. Insider Trading Regulations, suggest that Martha Stewart was a victim of Enforcement Bias. Hemingway proposed that Stewart’s personal characteristics such as simply being a woman, a financial supporter of the Democratic Party, and being a public figure could be reasons for why she may have possibly been singled out for criminal prosecution. Hemmingway explains that there could have been a gender bias since the trading activity involving ImClones stock included more men than woman. Martha Stewart is also a Democrat and financial contributor to the Democratic Party, Hemingway explains. Adversely she enlightens, that Kenneth Lay, who used to be the CEO of Enron Corp. also reportedly cashed out of his Enron stocks before its market price fell, however he was never prosecuted. Hemingway acknowledges that Lay is a republican and financial contributor to the Republican Party, insinuating that Stewart is being made an example of because she is on opposite sides of the presidential campaign. (Pp.251 and 271-276.) From my understanding, this passage in the Hemmingway’s journal basically says that Stewarts celebrity status was used to make an example out of and show society that there are legal consequences for Insider Trading. This allows an individual to question the fact that there was no justice served in the Enron

After reviewing the federal statue under 15 U.S.C. 78U-1 – civil penalties for insider trading, it provides clarity on why Martha Stewart was not charged with insider trading. On December 27, 20, 2004 Martha Stewart sold ImClone stock based on information she received from her stock broker who stated that the CEO of the company Sam Waksal was dumping his $5 million stake in the company. Stewart owed 4000 shares of ImClone, which was worth $45,673. Even though Stewart’s actions were somewhat suspicious, there was no proof that she knew that the FDA did not grant the approval for the drug Erbitux. She may have been friends with the CEO, but there was no proof of him contacting her or vice versa regarding the FDA decision; In order to charge Stewart

Since 1869, the investment banking firm Goldman Sachs has been working to satisfy their customer’s financial needs. In 2008 the firm played a large role in causing the devastating market crash that negatively affected millions of families around the world. At the heart of the cause of the depression, Goldman Sachs took certain steps to make sure they profited, but unfortunately it was at the expense of the market and the public. Just before the market crash, the company blatantly acted in a manner inconsistent to their code of ethics as well as the standards governing their industry.

Insider trading is essentially the trading of confidential information that is basically sold to the highest bidder. David Hilzenrath, a journalist, describes, “Given the scope of the allegations to date, we are not talking simply about the occasional corrupt individual, we’re talking about something verging on a corrupt business model…” (Hilzenrath). Hilzenrath is suggesting that Wall Street as a whole is being deceitful and doing more than they are letting the public know. Insider trading is not a victimless crime, it takes advantage of honest investors. It is easy to stereotype the rich as greedy due to how they attain their wealth through power but the middle class can be just as greedy by trying to live vicariously behind a mountain of

Such a classic corporate insider, who owes fiduciary duties to the corporation and its shareholders, has a duty either to abstain from trading or disclose such information before trading” (Kaplan, Matteo, Pfeffer). Generally the simplest forms of insider trading are categorized under the Classical Theory.

It is not always the corporate directors and officers that who find out this information first it can range from the lawyers to the person that prints out the companies’ financial papers. Basically anybody who has knowledge of a companies future weather in being good news or bad, the person can profit from it. This person can often make profits trading stocks by using the inside information he has to guide his decisions on buying or selling of the stock. The rule that stops firms from allowing their insiders to trade is rule 10b-5, which is the SEC’s, law against insider trading. Rule 10b-5 comes from 10-b the 1934 act, which is a provision that allows the SEC to prohibit “any manipulative or deceptive device or contrivance.” This basically means that the federal law does not prohibit insider trading, and the insider trading crime was not defined or expressed in any statues, or rules administered by the SEC. The federal securities law only offers one cure for insider trading and that is an injunction against future violations. Some firms think insider trading should be allowed because if you look at it from a property rights perspective, some firms will be able to reduce the salaries they pay their employees. Although not all firms believe in this thought for it wouldn’t be as compelling for them and it is unlikely to be advantageous for all firms. The trading for insiders would reduce their

For example, Manna (1966) states that insider trading should be allowed because insider trading is the most effective way to compensate to insider to generate new economic information in firm. Hirshleifer() states that for insider, good information is as good as bad information to make profit but this profit may not be related to economic contribution of insiders in corporate. Proponents of insider trading suggest (Carlton and Fischel (1983) that insiders are the most informative member in the market, and by trading, they bring new information to the markets and causing prices to change toward their true value and, therefore, promoting the optimal allocation of resources. On the other hand, Scholars (Benabou and Laroqu, 1992) say that insider trading may provide incentive to corporate insiders either to delay the announcement of price-sensitive information to public or to prevent to release price sensitive information, which in turn makes stock prices less informative. However, Georgakopoulos (1993) argues that restriction on insider trading may have little adverse impact on market efficiency but it reduces the cost of transaction that burdens on uninformed traders

Corporate directors and officers often obtain advance inside information because of their positions. Sometimes the information can affect the future market value of the corporate stock. It is obvious that their positions can give them a trading advantage over the general public and shareholders. Often times the insider is the company manager; other times it is the company's lawyer, investment banker, or even the printer of the company's financial statement. Anyone who has knowledge before public dissemination of that information stands to benefit from good news or bad news.