Money and fair play are two words that do not normally go together when it comes to how it is received. Scamming is always present, in many different forms and carried out in many different ways. One of these ways is called "insider trading". This method of cheating the system is commonly found in the world of stocks, which is a huge factor in the economy. Using information one acquires from their status in society, in benefit towards themselves, without the outside world knowing is considered not only illegal but unethical by many. The seriousness of insider trading was not brought to light until some time after the stock market crash of 1929. This specific event can be summed up as a day where many investors traded around 16 million shares …show more content…
Newman case. Strader says that "the Newman decision is one important step in reconceptionalizing insider trading as a form of common law fraud" (1424). Summarized, the case consisted of two defendents who had invested into DELL and NVIDIA, earning 4 million and 68 million dollars respectively. However, the two defendents had come across information from a few friends who worked in said companies. These friends had leaked nonpublic information to the defendents, which lead to them investing into the comapanies and earning the large sum of money. The main contrevesary that this case brings to the world of insider trading is that the "insiders" who spilled the information were not punished in any way by the Government, since they technically gained no private value from it, while the two defendents serve prison time. The Second Circuit, who were in charge of said case, argued that the ones who leaked the information are equally as responsible and should take credit for participating in the insider trading. As a result, it was ruled that friendship is not enough of a benefit to sentence "insiders" into …show more content…
The first way the public is affected is through an increase in the wealth gap. Those who are placed high on position of a popular company only get richer with insider trading. It is unfair because the public are missing out on the opportunity to reap the same benefits simply because they do not have the same access. The second way is that the confidence of investors is heavily diminished through insider trading. If a handful of investors are successful in the stock market because of the information they obtain, it leaves space for foul play to be assumed. Other investors in the market can accuse the whole thing of not being fair, and that is exactly what the Government is trying to avoid with the laws they have passed to restrict the unfairness in the stock
While the widely exposed and discussed trials of WorldCom's and Tyco's top executives were all over the media, one of the most interesting cases of securities fraud was happening without any public acknowledgement.
There have been many financial corruptions and scandals though out history and in 1869 one such scandal rock The United States financial institute’s foundation. The attempt to corner the gold market lead to the preverbal straw which almost broke the camel’s back. This scandal has become to be known as Black Friday, not to be confused with the Friday following Thanksgiving this Black Friday proved that without oversight of the market it could quickly become a market of the few.
Overview of the Case: The Securities and Exchange Commission claims Mark D. Begelman misused proprietary information regarding the merger of Bluegreen Corporation with BFC Financial Corporation. Mr. Begelman allegedly learned of the acquisition through a network of professional connections known as the World Presidents’ Organization (Maglich). Members of this organization freely share non-public business information with other members in confidence; however, Mr. Begelman allegedly did not abide by the organization’s mandate of secrecy and leveraged private information into a lucrative security transaction. As stated in the summary of the case by the SEC, “Mark D. Begelman, a member of the World Presidents’ Organization (“WPO”), abused his relationship of trust and confidence and misappropriated material, non-public information he obtained from a fellow WPO member about the pending merger. It was the specific written policy of the WPO that matters of a confidential nature were to be kept confidential (Securities and Exchange Commission). Mr. Begelman maintained a relationship with a fellow WPO member, an insider with BFC Financial, who provided access to non-public information regarding the merger. Mr. Begelman used this information to purchase 25,000 shares of Bluegreen stock prior to the announcement of the acquisition. After the merger was made official and disclosed to the street, Mr. Begelman sold his stake for a net gain of $14,949. He maintained ownership of Bluegreen securities for fifteen days (Gehrke-White).
Enron corporation, a company establisted at 1985, in Taxes. Until 2001, it becames one of the biggest company in the world, which service for energy, natural gas and telecommunications. In 2000, the disclosure turnover reached $101 billion. Everything is going well for Enron corporation. However, at beginning of 2001, Jim - a good reputation of the short-term investment agency owner. Publicly on Enron’s profit model expressed doubts. He pointed out that alough Enron’s business looks very brilliant, but in fact they cannot really make the amount of moeny like the data shown before. No one can say they can understand how Enron is making moeny. According to the inverstment owner’s analysis, Enron’s profitability in 2000 to 5%, to the beginning
U.S. Securities and Exchange Comission (2000). Selective disclosure and insider trading. Accessed on February 15, 2009 at: http://www.sec.gov/rules/final/33-7881.htm.
Throughout the past several years major corporate scandals have rocked the economy and hurt investor confidence. The largest bankruptcies in history have resulted from greedy executives that “cook the books” to gain the numbers they want. These scandals typically involve complex methods for misusing or misdirecting funds, overstating revenues, understating expenses, overstating the value of assets or underreporting of liabilities, sometimes with the cooperation of officials in other corporations (Medura 1-3). In response to the increasing number of scandals the US government amended the Sarbanes Oxley act of 2002 to mitigate these problems. Sarbanes Oxley has extensive regulations that hold the CEO and top executives responsible for the numbers they report but problems still occur. To ensure proper accounting standards have been used Sarbanes Oxley also requires that public companies be audited by accounting firms (Livingstone). The problem is that the accounting firms are also public companies that also have to look after their bottom line while still remaining objective with the corporations they audit. When an accounting firm is hired the company that hired them has the power in the relationship. When the company has the power they can bully the firm into doing what they tell them to do. The accounting firm then loses its objectivity and independence making their job ineffective and not accomplishing their goal of honest accounting (Gerard). Their have been 379 convictions of fraud to date, and 3 to 6 new cases opening per month. The problem has clearly not been solved (Ulinski).
On Thursday, October 24th, 1929, people began to sell their stocks as fast as they could. Sell orders flooded the market exchanges. (1929…) This day became known as Black Thursday. (Black Thursday…) On a normal day, only 750-800 members of the New York Stock Exchange started the exchange. (1929…) There were 1100 members on the floor for the morning opening. (1929…) Furthermore, the exchange directed all employees to be on the floor since there were numerous margin calls and sell orders placed overnight. Extra telephone staff was also arranged at the member’s boxes around the floor. (1929…) The Dow Jones Average closed at 299 that day. (1929…)
Bernard Madoff had full control of the organizational leadership of Bernard Madoff Investments Securities LLC. Madoff used charisma to convince his friends, members of elite groups, and his employees to believe in him. He tricked his clients into believing that they were investing in something special. He would often turn potential investors down, which helped Bernard in targeting the investors with more money to invest. Bernard Madoff created a system which promised high returns in the short term and was nothing but the Ponzi scheme. The system’s idea relied on funds from the new investors to pay misrepresented and extremely high returns to existing investors. He was doing this for years; convincing wealthy individuals and charities to invest billions of dollars into his hedge fund. And they did so because of the extremely high returns, which were promised by Madoff’s firm. If anyone would have looked deeply into the structure of his firm, it would have definitely shown that something is wrong. This is because nobody can make such big money in the market, especially if no one else could at the time. How could one person, Madoff, hold all of his clients’ assets, price them, and manage them? It is clearly a conflict of interest. His company was showing high profits year after year; despite most of the companies in the market having losses. In fact, Bernard Madoff’s case is absolutely stunning when you consider the range and number of investors who got caught up in it.
Insider trading, just like with any other company, is a big rule in the stock market business. This means that if someone has information that is not public, they should not use that to their advantage in the market. Even a transaction that seems improper must be avoided. Trades are monitored very closely and Cisco cooperates with government agencies for investigations. Cisco employees are also not allowed to pass on information they know to their family or friends to avoid a loss or make a profit. This would be a breach of corporate confidentiality. Employee should avoid talking about work in public places so information isn’t slipped
Whatever the reason, state rules seem to have been ill-equipped to stave off Enron. As a result, the ABA commissioned a task force to recommend changes rules to 1.6 and 1.13. State model rules differ significantly and offer little guidance to rectify the overall situation. In most states disclosure is now allowed, but not required to prevent a client from committing a fraud that may result from financial injury to others. Additionally, fraud may be reported up the latter when an organization is represented. Attorneys must reveal fraud if committed on a tribunal. Further, disclosure is required when a client’s purpose to commit fraud is manifest and the attorney is unable to talk him out of it. In some states disclosure is states for financial crimes: Wisconsin and Virginia’s model rules ostensibly require attorneys to report securities fraud through the broad obligation to report crimes likely to cause harm to another.
"This is why the market keeps going down every day - investors don't know who to trust," said Brett Trueman, an accounting professor from the University of California-Berkeley's Haas School of Business. As these things come out, it just continues to build up"(CBS MarketWatch, Hancock). The memories of the Frauds at Enron and WorldCom still haunt many investors. There have been many accounting scandals in the United States history. The Enron and the WorldCom accounting fraud affected thousands of people and it caused many changes in the rules and regulation of the corporate world. There are many similarities and differences between the two scandals and many rules and regulations have been created in order to prevent frauds like these. Enron Scandal occurred before WorldCom and despite the devastating affect of the Enron Scandal, new rules and regulations were not created in time to prevent the WorldCom Scandal. Accounting scandals like these has changed the corporate world in many ways and people are more cautious about investing because their faith had been shaken by the devastating effects of these scandals. People lost everything they had and all their life-savings. When looking at the accounting scandals in depth, it is unbelievable how much to the extent the accounting standards were broken.
The world we live in today requires us to be good at whatever career we choose or we are not able to support ourselves. In order to be the best we can be, we usually work hard, practice our chosen field, and put forth all effort needed to make us good at what we do. There are many ways we can choose to support ourselves. Careers are varied and we have many jobs to choose from. With so many opportunities open to people today, it should be easy to select a career that gives you an honest living. We all want to trust others and hope that people are honest. This, wanting to trust, is what some people use in their chosen careers. People who use others in order to gain an income are known as con artists. To con people means to swindle, or cheat, them and being an artist means that one is very skilled at what he does so a con artist is very much capable of cheating others to make a profit.
Insider trading has been a commonly discussed topic since Martha Stewart was accused, tried, convicted, and served a prison term for her involvement with the Inclon trading scandal. However, the definition of the term “insider trading” is not necessarily always connected with illegal activity. As a matter of fact, in some jurisdictions, “insider trading” is no crime. Traditionally, it has been an expected, and perfectly acceptable prerequisite for certain sorts of employment. ”(Insider Trading).
During the 1920s, approximately 20 million Americans took advantage of post-war prosperity by purchasing shares of stock in various securities exchanges. When the stock market crashed in 1929, the fortunes of many investors were lost. In addition, banks lost great sums of money in the Crash because they had invested heavily in the markets. When people feared their banks might not be able to pay back the money that depositors had in their accounts, a “run” on the banking system caused many bank failures. After the crash, public confidence in the market and the economy fell sharply. In response, Congress held hearings to identify the problems and look for solutions; the answer was found in the new SEC. The Commission was established in 1934 to enforce new securities laws that were passed with the Securities Act of 1933 and the Securities Exchange Act of 1934. The two new laws stated that “Companies publicly offering securities must tell the public the truth about their businesses, the securities they are selling and the risks involved in the investing.” Secondly, “People who sell and trade securities must treat investors fairly and honestly, putting investors’ interests first.”2
When put in an ethical situations, people use different reasoning’s’ and perspectives to resolve their problems to their advantage. There was nobody validating what was going on. This brings the ethical conflict of Andy Fastow into play; one of the key problems within Enron. Andy Fastow was the man keeping Enron 's “successful” business appearance. While the company was $30 billion in debt, Fastow manipulated the books to make it look like they were still making profits. Fastow might have not been the one to begin the fraudulent activities, but he did it in order to please his bosses. He created two partnerships called LJM1 and LJM2; with the plan of buying Enron’s poorly performing stock to improve their financial statements. Additionally, Fastow went in front of the board of directors to exempt himself to run the two companies as well as Enron, aka conflict of interest. According to the documentation, Fastow allegedly collected $30 million in management fees while defrauding his own