...Why Is Insider Trading Considered Wrong? Insider trading is defined as “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. The stock market is supposed to be “fair,” and having insider information gives an illegal edge to possible investors. Insiders include those such as officers or directors of a certain company. They can also include investors that own more than a 10% share in a company because those individuals usually get to sit on the board. These individuals have a fiduciary duty to the owners of the company’s stock, meaning that they put their interests before their own. Furthermore, in the United States, insider trading does not have to be committed by an aforementioned “insider.” It can be committed by any shareholder who buys based off of nonpublic knowledge. When one person buys a stock because of nonpublic information, there is also a seller of that same stock that may have not made that sell decision if they knew the same nonpublic information, and vice versa. In addition, future buyers of that particular stock are going to pay inflated prices compared to the investor with insider information because he had access to that information first. Transparency is a big part of keeping the markets balanced, which means that all investors have the same information available to them. For example, it would not be fair if one student had the test bank for a test...
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...public confidence in the integrity of the securities markets.1 The government also created the Securities and Exchange Commission (SEC) to protect the financial markets by enforcing the Securities Exchange Act.2 One of the most important issues covered by the Securities Exchange Act concerns illegal insider trading in which individuals sell or purchase investments based on privileged inside information. Illegal insider trading activities significantly harm the integrity and stability of the securities markets. Thus, it is critical for people to understand and adhere to the requirements set forth by the Securities Exchange Act to prevent illegal insider trading, and it is equally important for those individuals who break the law and engage in these prohibited activities to be prosecuted and punished accordingly. There are two forms of insider trading, one that is considered legal and the other that is clearly illegal. The legal form of insider trading involves corporate officers and directors who buy and sell stock within their own companies on the basis on publically available information. So, once the company releases confidential information to the public, then the insiders are allowed to legally make their trades based on that...
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...Abstract Insider trading is a serious crime. The general public is held accountable, and yet, it is legal for members of Congress. There are several cases involving members of society being prosecuted for their illegal activity of insider trading; while Congress has exempted their members from acting on the same type of information. This type of conduct has serious legal, ethical and moral considerations. This paper will address the definition of insider trading. The legal, ethical and moral considerations of insider trading will be outlined, through a snap shot of the legal precedence recently in the press involving congressional behavior. It will further look at cases that have made headlines in past years, to show the distinction of what can happen to the general public who participate in insider trading. During a recent article by Parloff (2011), he stated, “The problem arises with respect to market-moving information a congressman learns in the course of doing his legislative work.” This comment is at the heart of the issue involving insider trading and Congress. The people elect members to Congress to act in their best interest. When the people of society feel members of Congress have violated that trust under legal, ethical, or moral wrongdoing, the members of society make decisions based upon those standards set by Congress. Thus members of society participate in insider trading knowing it is legally wrong. Insider Trading Insider trading can be a severe crime...
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...| Insider Trading? | | BA265 Business Law II | | Insider Trading? | | BA265 Business Law II | grantham university June 11, 2012 Authored by: Felix E Rivera grantham university June 11, 2012 Authored by: Felix E Rivera Manny works for Medivac. Medivac is a manufacturer of spinal surgical equipment. Medivac is in preliminary talks with Medtronic to merge with Medtronic. Medtronic is the leader in spinal surgical equipment. Manny calls his brother Mitchell on Monday. Manny tells Mitchell to purchase shares in Medivac as the proposed merger will be announced on Wednesday. Manny purchases $5 million dollars in Medivac shares. The merger is announced and Medivac stock soars from $5 dollars to $50 dollars. Did Manny violate federal securities laws? If so, what law and why? I researched the Federal Securities Laws through the U.S. Securities and Exchange Commission (SEC) website and the term “insider trading” itself is not defined in the federal securities laws. What I did gather is that it is a term generally used to refer to the use of non-public information to trade in securities (in some cases the person who leaks the information isn't really an “insider”), or the communication of non-public information to others. So what is an insider to me? Although I could not find a specific definition, I understood that the law prohibits: * Trading by an insider, while in possession of material non-public information * Trading by a non-insider...
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...Insider Trading at the Galleon Group The Galleon Group was one of the largest hedge fund management firms in the world, managing over $7 billion, before closing in October 2009. From greed to more greedy, and finally to destruction, this time the protagonist is Rajaratnam, he was accused of 14 securities fraud. Rajaratnam had a glorious history. He is 52 years old Sri Lanka-American, graduated from the Wharton School, he began his career in the field focusing on technology investment bank Needham & Co., An analyst from the start, 34-year-old became the president of this bank. In 1997, he started a technology stocks investment company, which was called Galleon Group in New York. In 2009, Rajaratnam's net worth to $ 1.3 billion by Forbes global rich list among the first 559. When Galleon was established in NY, Rajaratnam said: "This is Raj Rajaratnam, only the paranoid survived." Unfortunately, this time his "paranoid" gets too far. Rajaratnam's case is the largest in the history of Wall Street hedge fund insider trading case at that time, but also the first use of the Federal Investigation Agency monitor means to obtain evidence relating to insider trading. Rajaratnam's arrest on behalf of the US government efforts to combat financial crime has entered a new phase. In this case, there are two ethic issues that can be discussed. The first is a white-collar crime; insider trading is one of them. The second is the wiretap recording, whether it is legitimate, if it is, what...
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...Insider Trading - An Analysis in Corporate Regime 1. Introduction Man amongst all species has proved himself to be the greediest creature since times immemorial. His greed has made him stop as low as possible in utter disregard for all principles of fair play, honesty, morality, etc. In the past and particularly in the last two decades we have witnessed many instances not only at National level but even across the globe where some genius brains have been able to use the vulnerable platform of stock market to their own advantage by enriching themselves enormously at the cost of unprecedented financial losses to thousands of others. A common tool used by these manipulative brains is what in common parlance is known as Insider trading. With the vast developments in trade and commerce all over, every person has become very materialistic. That is the reason why people in general and particularly those in business have developed profit motives. And it is quite often that to fulfill their own monetary expectations, such people employ illegal or immoral means. One such illegal method used by some vested interests in area of corporate business is insider trading.[1] Thus, when an insider of a company uses its price sensitive confidential information to buy or sell its securities thereby making a personal profit, he commits acts to the detriment of the interests of bona fide investors of the company. However, in reality, insider trading can be both legal and illegal. Legal in...
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...Insider Trading More Americans are involved in the stock market than ever before, investing for their retirement and hoping to achieve financial security. But, the stock market has been anything but secure over the years. In fact, after the Stock Market Crash of 1929, so many Americans lost money and confidence in the stock market that Congress passed specific securities laws to help protect investors and to prevent the abuses believed to have contributed to the collapse. The Securities Act of 1933 and Securities Exchange Act of 1934 were enacted by congress with the intent of protecting investors engaged in securities transactions and assuring public confidence in the integrity of the securities markets.1 The government also created the Securities and Exchange Commission (SEC) to protect the financial markets by enforcing the Securities Exchange Act.2 One of the most important issues covered by the Securities Exchange Act concerns illegal insider trading in which individuals sell or purchase investments based on privileged inside information. Illegal insider trading activities significantly harm the integrity and stability of the securities markets. Thus, it is critical for people to understand and adhere to the requirements set forth by the Securities Exchange Act to prevent illegal insider trading, and it is equally important for those individuals who break the law and engage in these prohibited activities to be prosecuted and punished accordingly. There are two forms...
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...Insider trading is the trading of a corporation's stock or other securities (e.g. bonds or stock options) by individuals with potential access to non-public information about the company. Such a trade is motivated by the possibility of generating extraordinary gain with the help of nonpublic information (information not yet made public). It gives the trader an unfair advantage over other traders in the same security. insiders are defined as a company's officers, directors and any beneficial owners of more than ten percent of a class of the company's equity securities ------------------------------------------------------------2--------------------------------------------------------------------------- It is important to distinguish between a STAKEHOLDER and a SHAREHOLDER. They sound the same – but the difference is crucial! Shareholders hold shares in the company – that is they own part of it. Stakeholders have an interest in the company but do not own it (unless they are shareholders). Often the aims and objectives of the stakeholders are not the same as shareholders and they come into conflict. The conflict often arises because while shareholders want short-term profits, the other stakeholders’ desires tend to cost money and reduce profits. The owners often have to balance their own wishes against those of the other stakeholders or risk losing their ability to generate future profits (e.g. the workers may go on strike or the customers refuse to buy the company’s products)...
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...INSIDER transactions are one of the most controversial and sensitive disclosures for companies to communicate to investors. How your company handles these disclosures can make a strong statement to investors about your company’s transparency. The history of insider transaction disclosure on the Web illustrates companies’ sensitivity and reluctance to provide this information to investors. For years, regulators such as the U.S. Securities and Exchange Commission (SEC) tried to improve transparency around insider trading only to be blocked by heavy corporate lobbying. Eventually, it took massive corporate scandals and collapses in 2001 for the tide to turn against the business lobby. Finally, the SEC introduced rules forcing all U.S. companies to provide access to their insider transaction filings on their corporate websites starting in June 2003. The SEC also dramatically shortened the deadline for insiders to make their filings and made significant improvements to the EDGAR database to accommodate electronic insider reporting. Under the old rules executives had up to 41 days to file reports with the SEC. With the new rules, however, insiders have to file reports by the end of the second business day following the day on which the transaction is executed. Significant geographic differences in insider disclosure Regulators in several countries have followed the SEC’s lead, but with varying levels of effectiveness because most lack a central electronic repository like EDGAR. Consequently...
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...CAN ONTARIO IMPROVE ITS INSIDER TRADING REGULATION AND ENFORCEMENT BY ADOPTING POLICIES USED IN THE USA? Prepared by Muhammad Bilal Amjad 2B Accounting and Financial Management ID 20429857 AFM 231: Business Law School of Accounting and Finance University of Waterloo Friday, August 9, 2013 Abstract The purpose of this paper is to present potential suggestions on how Canada (more specifically, Ontario) can improve its insider trading regulation and enforcement. In order to do so, this paper will compare the insider trading regulation and enforcement in Canada and the USA. It will examine whether or not Ontario should take from the methods used in the USA in order to strengthen its regulation and enforcement of insider trading. Ontario was chosen in particular because securities regulation in Canada falls under the jurisdiction of provincial governments, with Ontario being home to Canada’s largest securities market. Introduction Insider trading is a subject of great significance in security markets all across the globe. Not only does it violate securities law in Canada and many other countries, it is also seen as highly unethical. It applies not only to equity, but also to bond and option markets. Insider trading is deemed illegal primarily because it is contrary to the public trusts upon which security markets operates; it undermines investor confidence, and as a result, discourages investment (Dessaulles, 2013, p. 9). In addition, it is viewed as being immoral because...
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...Singapore law states that price sensitive information belongs to the company. However, the arguments made in “Property rights” push for the case that if this information does belong to the organization, then it is the organization’s right to allow its employees to use it for insider trading. Let us examine these arguments. Who does price-sensitive information belong to? The employees who create this price sensitive information are empowered by the finances and reputation of the firm. Without this, they can’t make decisions that create this information. For example, the CEO of a company can’t go on a joint venture with another company to create a new product if he doesn’t have the resources of the firm at his disposal. The employees may disagree and would otherwise disagree may argue that it was their skills and ability that allowed this price sensitive information to be created. Yet, an employment contract means that an employee allows and employer to is already a contract between the employer and the employee to allow the use theof an employee’s skills and abilities for the benefit of the company in exchange for remuneration. The employee is going to be already being rewarded for his work and claiming ownership of the information would otherwise thus be a breach of a contract. Thus, let us take the position that price sensitive information is created by and belongs to the company. The company has the right to do what it wills wants with the information. So it is firm and...
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... 16 October 2012 Insider Trading In a securities market there are winners and losers, people who get good prices and people who get bad prices. Other things equal, the person with the best information about what is being bought or sold stands in the best position to find bargains and get the best price. Competing against corporate insiders, who possess superior information thus increases the risk that one loses. As a society, we have good moral reason to protect ourselves against this kind of fraud. Definition of “Insider Trading” Insider trading is the trading of a corporation's stock or other securities (e.g. bonds or stock options) by individuals with access to non-public information about the company. In most countries, trading by corporate insiders such as officers, key employees, directors, and large shareholders may be legal, if this trading is done in a way that does not take advantage of non-public information. However, the term is frequently used to refer to a practice in which an insider or a related party trades based on material non-public information obtained during the performance of the insider's duties at the corporation, or otherwise in breach of a fiduciary or other relationship of trust and confidence or where the non-public information was misappropriated from the company.[1] Unfairness The first and most obvious argument that one may find to describe insider trading as immoral is the one of unfairness. Under their...
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...ANÁLISE EMPÍRICA DA PRÁTICA DE INSIDER TRADING EM PROCESSOS DE FUSÕES E AQUISIÇÕES RECENTES NA ECONOMIA BRASILEIRA ARTIGO – FINANÇAS Marcos Antônio de Camargos Doutorando em Administração no CEPEAD-UFMG Professor e Pesquisador do curso de Administração do Centro Universitário de Belo Horizonte (UNI-BH) e da Faculdade Novos Horizontes E-mail: mcamargos@cepead.face.ufmg.br Recebido em: 30/05/2007 Aprovado em: 02/10/2008 Julio Alfredo Racchumi Romero Doutorando em Demografia no CEDEPLAR-UFMG E-mail: julio@cedeplar.ufmg.br Francisco Vidal Barbosa Pós-Doutor pela Universidade de Harvard e Professor Adjunto do CAD/CEPEAD/FACE/UFMG E-mail: fbarbosa@face.ufmg.br RESUMO As negociações com uso de informações privilegiadas (insider trading) criam oportunidades para que alguns agentes do mercado lucrem em detrimento de outros, levando a uma transferência de riqueza entre os acionistas. O anúncio de uma fusão ou aquisição é um momento oportuno para essa prática, visto que quase sempre causa impactos significativos nas expectativas dos agentes do mercado e nos preços dos títulos. Este artigo analisou se essa prática esteve presente em processos de fusões e aquisições recentes, realizados por grandes empresas brasileiras, utilizando-se de um estudo de evento para o qual, além da análise do retorno acionário anormal, fez-se a comparação de médias de variáveis sinalizadoras do comportamento dos títulos no mercado (liquidez). Para a análise foram utilizadas ações preferenciais, ordinárias...
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...Insider trading is experiencing major cases, which include Marvericks’ Owner trials with the Securities and Exchange Commission, criminal trial of Expert Network James Fleishman and the trial of a former Goldman director. Goldman Sachs Group Inc.’s board and other boards controlling the companies affiliated to Insider Trading have failed to control business issues in the companies. In some cases, the boards have interfered with the functioning of the Insider Trading through the manner in which they make decisions. Boards have been involved in making decisions and approving some deals in the company, which resulted into the cases. A good example is the Goldman case where the board approved the deal at a time of financial crisis. Some directors helped each other in acquiring deals within a few minutes which led to illegal business deals. Different nations have enacted laws concerning insider trading in control of the roles played by boards of directors. In Canada and USA, there have been considerable changes in the laws concerning securities in the business (Foster, 1996). The federal legislation regulates the securities trading and contribution of boards and CEOs in different sections. The subsequent judicial decisions introduced in the business outline the main roles of the insider trading regulations. In the regulations, boards monitor operations in the business, as well as operations of CEOs. The Securities Exchange Act enacted in 1934 regulates secondary trading and also...
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...of India (Prohibition of Insider Trading) Regulations, 1992 (Insider Trading Regulations). 1. Legal version is when corporate insiders—officers, directors, employees and large shareholders, buy and sell stock in their own companies. When corporate insiders trade in their own securities, they must report their trades to the SEC 2. Any “dealing in securities” while in the possession of “unpublished price sensitive information” is prohibited under the Insider Trading Regulations and the term “dealing in securities” covers the act of subscribing, buying, selling or even agreeing to subscribe, buy or sell securities. 3.Therefore, if the financial investor has been provided or gained access to unpublished price sensitive information during the due diligence process or at the negotiations stage and subsequently decides to invest in the listed company, then such financial investor can be held liable for the offence of insider trading under Indian law. 4. Indian Regulation 3 of SEBI seeks to prohibit communication, counseling and dealing relating to Insider Trading. According to the regulation, no insider on his behalf of any other person deal in securities of a company when in possession of any unpublished price sensitive information or communicate, procure or counsel, indirectly or directly any unpublished price sensitive information to any person, who does not deal in securities in possession of such unpublished price sensitive information. 5. Any insider who deals in securities in...
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