...Insiders Trading: Is it unethical? Table of Content Introduction 3 Body 3-4 Appendix A 5 Conclusion 5 Work Cited 6 Introduction Insider trading occurs when a trade has been influenced by the privileged possession of corporate information that has not yet been made public. Because the information is not available to other investors, a person using such knowledge is trying to gain an unfair advantage over the rest of the market. You're acting on information not known to other investors. Using nonpublic information for making a trade disturbs transparency, which is the basis of a capital market. Information in a transparent market is disseminated in a manner by which all market participants receive it at more or less the same time. Under these conditions, one investor can gain an advantage over another only through acquiring skill in analyzing and interpreting available information. This skill is based on individual merit and awareness. If one person trades with nonpublic information, he or she gains an advantage that is impossible for the rest of the public. This is not only unfair but disruptive to a properly functioning market if insiders trading were allowed, then investors would lose confidence in their disadvantaged position and would no longer invest. Body The practice of insider trading is considered to be unethical by many people around the world. The United States Securities and Exchange Commission (SEC) describe...
Words: 855 - Pages: 4
...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...
Words: 6882 - Pages: 28
...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...
Words: 3327 - Pages: 14
...I started my professional career at one of the “big four” accounting firms working within the audit department. As it is customary, audits are performed within a ‘Chinese wall’ environment and auditors are bound by law not to disclose any information to third parties nor to other colleagues within the firm. Reason being, auditors have unrestricted access to sensitive financial information that can be used to front run markets. One particular late Friday night, a couple of us were sitting at a bar close to the client’s Head Office and after a couple of drinks, Donald, a colleague and good old friend of mine working on the same audit asked me point blank whether I would entertain making use of the privileged information we held and buy shares before the company released its results, which were due in less than 3 weeks. The company had done remarkably well that year and we knew that such results would have had a significant impact on the share price. I was shocked at this jaw dropping indecent proposal. I assumed that it was the beer talking and not him. On the way home, I could not help thinking about the money I could make on the back of this information. I must admit, that throughout the audit, this idea had already loosely crossed my mind, but at no point I took it seriously and never thought of actually taking action on my privileged position. Besides the moral aspects of the situation, I also knew the legal repercussions including the withdrawal of my professional...
Words: 895 - Pages: 4
...of America is one of the few western countries which has no clear definitions for “insider”, “insider information”, and “insider trading” in its law system. Therefore, people are sending to prisons for a crime that has not defined yet. It is part of a due process that people have notice of what they are doing is wrong. Martha Stewart was sent to prison, because she sold her ImClone shares as a result of receiving tip from her broker on December 27, 2001. Bacanovic, Stewart’s broker, had routine access to the material, non-public information inside of ImClone which made him an insider. The argument here is whether Martha Stewart is an insider or not? Is receiving a tip makes her an insider? The same way, Sam Waksal, the CEO of ImClone, tipped his family members, an investment advisor, and a physician to sell their shares. However, none of the tippees was convicted with the insider trading crime, except for Martha Stewart. Martha Stewart was not holding any position in ImClone, nor had any routine access to the ImClone’s material, non-public information. Thus, how can she be possibly considered as an insider? It is very brutal to be convicted of a crime which has not been clearly defined in the law system, yet. The criticism here was that Martha Stewart was being used as a scapegoat, a victim. She could easily serve as an example of a high visibility celebrity who committed the insider trading crime. Also, it could be a credit for the United States Justice System in which everybody...
Words: 612 - Pages: 3
...addresses both legal and illegal insider trading applicable, but not limited, to corporate executives, directors, employees, friends and family of insiders, people who are privy to information as a result of working for a firm that has inside information due to interaction with the corporation (SEC, n.d.). The SEC governs securities, but the same guidelines can be applied to other forms of monetary investment or gambling where one party has knowledge that unfairly provides an opportunity to make a more informed decision than other participants. Insider Trading Limits and Pete Rose The Pete Rose case is an example of illegal betting with inside information. Pete Rose should refrain from betting on the success of his team because he has information about the players, opponents, and game plan that other betting parties do not. Further, there could be arrangements made with the other team to play differently and receive monetary compensation, compromising trust and integrity of the sport (Klosterman, 2014). Punishments should be more severe for betting on a loss since the ability to create the loss by intentional poor performance, for...
Words: 806 - Pages: 4
...The SEC addresses both legal and illegal insider trading applicable, but not limited, to corporate executives, directors, employees, friends and family of insiders, people who are privy to information as a result of working for a firm that has inside information due to interaction with the corporation (SEC, n.d.). The SEC governs securities, but the same guidelines can be applied to other forms of monetary investment or gambling where one party has knowledge that unfairly provides an opportunity to make a more informed decision than other participants. Insider Trading Limits and Pete Rose The Pete Rose case is an example of illegal betting with inside information. Pete Rose should not be allowed to profit from betting on the success of his team because he has information about the players, opponents, and game plan that other betting parties do not. Further, there could be arrangements made with the other team to play differently and receive monetary compensation, compromising trust and integrity of the sport (Klosterman, 2014). Punishments should be more severe for betting on a loss since the ability to create the loss by poor performance, for example, is easier. Even with required disclosure and laws in place to deter insider gambling and...
Words: 844 - Pages: 4
...Current insider trading law is a theoretical mess. Legal experts have described it as seriously flawed, ill-defined, inconsistent, dysfunctional, and an enigma. A recent paper posits a new theory of insider trading which may provide some coherence what is now a dog’s breakfast. For those in investment research, any improved clarity would be a godsend. Sung Hui Kim, a law professor at UCLA, released a paper last month titled “Insider Trading as Private Corruption” which argues that insider trading should be based on a corruption standard rather than the current standard of common law fraud. Kim posits a new definition of insider trading: “use of an entrusted position for self-regarding gain.” In her view, insider trading is a form of private corruption, analogous to public corruption. Current confusion In the paper, Kim applies the new standard to existing insider trading cases, including controversial cases which exemplify regulatory overreach. In SEC v. Dorozhko, for example, the SEC argued that a hacker’s infiltration of a company’s server and his subsequent trading on the extracted financial information violated federal insider trading law. However, based on precedent, the hacker would not be liable for insider trading because insider trading generally requires the breach of a fiduciary duty. Nevertheless, the Second Circuit Court of Appeals held that liability could be found—even without a breach of fiduciary duty—as long as the defendant “affirmatively misrepresented...
Words: 990 - Pages: 4
...(b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or(c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security. SEC v. Antar, 15 F. Supp. 2d 477 (D.N.J. 1998) dealt with whether corporate insiders traded in the securities of his corporation on the basis of material and nonpublic information. The defendants participated in multifaceted fraud schemes for the purpose of artificially inflating the price of stock, selling their substantial stock holdings to an unwitting public, and profiting in excess of $20 million. The court stated that shareholders of a corporation and those insiders who obtain confidential information by reason of their position with the corporation have a relationship of trust and confidence and that trading on such information qualifies as a "deceptive device" under § 10(b). The Securities Act was...
Words: 835 - Pages: 4
...1.) Because of the fact thatBL Gupta revealed the undisclosed profits of Goldman Sachs to another person, he is being tried for insider trading. The undisclosed profits of Goldman Sachs could affect the value of its stock. If the profits were up, then Raj would have been able to buy stock and then when the profits were announced, would be able to sell it and make money. If Raj already had stock, then he could have sold it then, and wouldn’t incur the loss if Sachs’s profits went down. He could have also used this information to gain investors, if it happened to be that they were competitors, and that Goldman Sachs’s profits were down. So it seems that giving out the undisclosed profits for Goldman Sachs’s could have indeed affected the future value of the stock, and is therefore deemed as insider trading. 2.) In Federal courts, you’re being sued for criminal actions, while in Administrative you’re tried for not complying by the rules. If there wasn’t a huge event, then administrative would be much easier to go through, because you do not have a jury. The SEC filed a public administrative proceeding against Gupta, which is determined under SEC rules, not the federal laws of civil procedures. All of these factors would have led up to Gupta losing his case, however, he managed to get the case into Federal courts instead of administrative. 3.) Gupta might have some defense, because he could claim that the revelation of the profits made was not “material”. He could...
Words: 498 - Pages: 2
...Illegal insider trading is when nonpublic corporate information has influenced a trade when someone buys or sells. When someone uses this information it allows them to gain an unfair advantage over other investors causing the market to gain or lose money. If insider trading were allowed then people that invested would no longer feel confident to invest. The legal way to gain an advantage over other investors would be for them to obtain skills in analyzing and understanding accessible information. According to the Securities and Exchange Commission, "Under Rule 10b5-1, the SEC defines insider trading as any securities transaction made when the person behind the trade is aware of nonpublic material information, and is hence violating his or her duty to maintain confidentiality of such knowledge"(Reem Heakal). An insider consists of someone who is accessible to information that has not yet been released to the public. These include CEO’s, executives, and directors that are exposed to the information. Insiders that also may have to keep quit consist of Accountants and Investment Bankers. According to the article by Reem Heakal, "In the second part of Rule 10b5-2, the SEC has outlined three nonexclusive instances that call for a duty of trust or confidentiality: (1) when a person expresses his or her agreement to maintain confidentiality, (2) when history, pattern and/or practice show that a relationship has mutual confidentiality and (3) when a person hears information from a spouse...
Words: 1934 - Pages: 8
...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...
Words: 3700 - Pages: 15
...Morgan Stanley managing director was jailed for seven years for trading with inside information. He brought shares of the Chinese commodities trader after realizing the proposed acquisition of oilfield assets while he was helping it to sell bonds. He was then ordered to compensate HK$23.9 million to investors who sold him shares in 2007 after his conviction with his assets frozen by SFC at the same time. 2. Causes and Antecedents 2.1 Breach of fiduciary duties Du’s failure to perform his fiduciary duty can be attributed to an easy access to nonpublic securities in the company. He was made privy to the details of the pitching exercise of Kazakhstan acquisition and handled a lot of confidential e-mails related to the project. Taking the advantage of this privilege, he got permitted to trade in CRH’s shares with approval from his designated manager without critical scrutiny. During the transaction, Du did not act with integrity in the best interest of his trustees. Instead he breached his duties and committed fraud by having 10 purchases of CRH shares before the announcement of its proposal and that alleged an act of insider dealing contrary to the Securities and Futures Ordinance (SFC). He even counseled and procured his wife to deal in the listed securities of CRH. 2.2 Inadequacy of internal control system A well-developed and comprehensive internal control system should be implemented to detect abnormalities in trading activities. In 2007, Du successfully made surroundings within...
Words: 998 - Pages: 4
...ACCT 212 Final Exam Ratings: (0)|Views: 472 |Likes: 0 Published by ssdasdasdas See more ACCT 212 Final Exam / FinancialAccounting Click this link to get the tutorial:http://homeworkfox.com/tutorials/business/15355/acct-212-final-exam-financial-accounting/ 6. (TCO 6) Depreciation is a process to allocate the cost of long-life assets to each period'sincome statement and adjusts the value of the asset on the balance sheet. (1) Explain how thestraight-line method is computed (10 points) and (2) provide an example of how this methodcould be used on a new delivery truck purchased for $25,000 to be used for 4 years with asalvage value of $0 for year one only. (15 points) (Points : 25) 7. (TCO 6) To raise capital, companies might sell bonds. This allows them to bypass lenderssuch as banks and go directly to the investing public. Your company is planning to sell bondswith a face amount of $10,000 and paying 5% annual interest. (1) The day the bonds hit themarket, the bond price is quoted at 101.5. What is the bond's selling price? (10 points) and (2)how does the company record this sale in its accounting information system? Use journal entriesto support your answer. (15 points) (Points : 25) 8. (TCO 1) Financial statement analysis is used by investors, creditors, and managers of businessto evaluate the operation and health of the business. This information is in part the basis for decision-making. (1) Identify ratios used to evaluate the profitability of a company (10 points)and...
Words: 1274 - Pages: 6
...Amongst some of the most famous and successful business women in America, Martha Stewart has been recognized for her successful business ventures in broadcasting, merchandising, publishing as well as a spokeswoman. Martha Stewart is a self-made entrepreneur with a fixation for money and never having enough. Stewart is a relentless workaholic who wished to earn every penny possible. Martha Stewart was known to be rude, profane, impatient and self-centered. Her coworkers had witnessed her fits of anger and never heard her apologize or admit she was wrong. Her stubborn compulsive and greedy personality is what would eventually lead to the downfall and public scrutiny of Martha Stewart. Martha Stewart was bashed by numerous media outlets for selling nearly 4,000 shares of ImClone right before the stock took a devastating drop in the price per share. Stewart was the topic of conversation as media headlines brought serious attention to the questionable stock trade. Headlines such as “Martha’s Prison Everyday Collection” from the New York Post and other negative publicity aroused from big name media sources. All this negative publicity destroyed Martha Stewart and her image however it came as a relief to Douglas Faneuil the stockbrocker’s assistant who played a crucial role in the ImClone trade. “In many ways, the intense press coverage and public mention of Stewart’s involvement came as a relief to Faneuil. He didn’t feel so alone. It wasn’t just him against Peter and Martha...
Words: 1082 - Pages: 5
