The U.S. Securities and Exchange Commission (SEC) differentiate insider trading into to legal and illegal behavior. The aspect of legal conduct involves members of corporations that purchase and trade stocks of their companies. This is common practice; however all transactions must be reported to the SEC (SEC, n.d.). This essay will focus on the illegal component of insider trading. Criminal investigation of insider trading will be discussed in addition to the prosecutions of various individuals who have been convicted of insider trading. Furthermore, the federal statute of insider trading will be examined in relation to Martha Stewart’s actions in selling her ImClone stock.
In recent years the investigations concerning insider trading
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have become more of a focus for the SEC. Insider trading cases are typically discovered by regulatory agencies such as the SEC, the Commodity Futures Trading Commission (CFTC), the New York Stock Exchange (NYSE), and the National Association of Securities Dealers (NASD). These agencies utilize experts and state-of-the-art computer programs that are capable of distinguishing unusual trading patterns from routine activity. If something abnormal is discovered, the SEC works in collaboration with several law enforcement agencies including the Department of Justice (DOJ), the FBI, or the United States Attorney’s Office (Committee on the Judiciary United States Senate, 2006). In criminal cases of insider trading, the prosecution is required to prove that a defendant knew that their conduct was violating the law, the conduct was in breach of a fiduciary obligation or other association of trust and confidence, and it must be established that trades occurred while in possession and use of material nonpublic information.
Proving criminality may be challenging because defendants may present a number of defenses. For example, defendants can assert that they were unaware that the information received was nonpublic. Additionally, defendants can argue that they did not know their trade was illegal and they may even deny having any knowledge or possession of the material information. Based on the aforementioned examples, a defendant could claim that their trade was merely a routine business transaction (Committee on the Judiciary United States Senate, …show more content…
2006). The insider trading cases of Stanislav Shpigelman and Eugene Plotkin were related to merger and acquisition activity. Shpgelman was an investment banker at Merrill Lynch and conveyed information on many occasions to Plotkin about numerous acquisitions and pending mergers that were managed by Merrill Lynch. In total, Shpgelman and Plotkin yielded 6.7 million dollars; all of which was confiscated by federal authorities. Plotkin was also involved in an insider trading case with Daniel Pajcin and Juan Renteria. Pajcin directed Renteria to obtain a job in the printing department of the magazine Business Week. Renteria had access to information about stocks that had not yet been released to the public. Based on this information, Plotkin and Pajcin executed stock trades (Gimble, 2006). The case of hedge fund trader Mathew Martoma is said to be the biggest and most profitable insider trading case in U.S. history. Martoma worked as a trader for SAC Capital was able to obtain information from doctors who conducted testing for an Alzheimer’s drug. Martoma utilized information from the drug trials to conduct trades resulting in SAC Capital to avoid losing 276 million dollars. Martoma was found guilty of two counts of securities fraud and one count of conspiracy. As part of a settlement, SEC Capital was ordered to close down its investment consulting business and pay 1.8 billion dollars in fines; the biggest insider trading fine on record in the U.S. to date (Gustin, 2014). The federal statute regarding insider trading considers it fraudulent and illegal to sell, trade, or purchase securities while in possession of material nonpublic information (SEC, n.d.). The SEC identifies that insider trading infringements also consist of “tipping.” “Tipping” occurs when material nonpublic information is conveyed and trades are likely to occur based on the information (Committee on the Judiciary United States Senate, 2006). In this writer’s opinion, the language of the federal statute for insider trading alone does not explain why Martha Stewart was not charged with insider trading.
Stewart owned 4,000 shares of ImClone stock and sold all of her shares two days prior to the FDA’s rejection of the company’s cancer treatment drug, Erbitux. The FDA’s denial of Erbitux resulted in a 16% drop in ImClone’s stock value. Stewart sold her shares based on a tip provided by her broker, Peter Bacanovic; he was also the broker for ImClone’s CEO, Sam Waksal. Bacanovic had told Stewart that Waksal was selling his $5 million in shares along with his daughter’s holdings (Leite,
2012). When the government caught up with Stewart, she told investigators from the SEC and the FBI that she had no knowledge of Waksal’s intentions to sell and claimed that her shares were sold based on a standing stop-loss agreement with Bacanovic. Stewart’s broker substantiated her account of why the shares were sold. However, her broker’s assistant along with her own assistant provided testimony that demonstrated Stewart and Bacanovic were both lying. Initially, Stewart was charged with insider trading, securities fraud, obstruction of justice, lying, and conspiracy. The securities fraud charge was dismissed by the judge and the DOJ dropped the insider trading charge (Leite, 2012). In Stewart’s case, the DOJ could have proven that Stewart knew her conduct was violating the law and that her trades occurred as a result of being in possession of material nonpublic information; she was herself a broker earlier in her life. Nevertheless, the DOJ focused their case on Stewart’s dishonesty. She was found guilty and sentenced to five months in prison, followed by five months of house arrest and two years of probation. Conversely, the SEC did pursue a case an insider trading case with Stewart. Stewart ended up settling with the SEC and was required to pay a fine of $195,000 (Leite, 2012).
Martha Stewart made a kind of securities fraud known as "insider trading" which means using insider information to make a stock transaction. It is trading in the stock market, making improper use of inside information. This information, most of the time, is held by directors of listed companies and those who provide investment services or counseling.
Martha Stewart was charged with securities fraud, obstruction of justice, conspiracy, and civil charges. She had made false statements to F.B.I., SEC, and investors. She withhold information from these organizations about the selling of her stocks with in the company of ImClone. She was convicted and sentence to five months in prison, five months of house arrest, and a full two years of probation.
Jurors will thoroughly inspect and weigh over the evidence provided, and process any and all possible scenarios through the elements of crime. If the evidence does not support the prosecutor 's argument and the elements of the crime beyond a reasonable doubt, the jury must pronounce the defendant not guilty. If questionable or irrelevant evidence is included in the criminal proceeding, it is the duty of the prosecutor or defendant 's counsel to object and insist that the evidence be excluded by the presiding
Martha Stewart and Peter Bacanovic were indicted on criminal charges arising from Martha Stewarts December 27, 2001 sale of 3,928 shares of stock in ImClone Systems, Inc. ("ImClone"). ImClone is a biotechnology company whose then-chief executive officer, Samuel Waksal, was a friend of Stewart's and a client of Stewart's stockbroker at Merrill Lynch, defendant Peter Bacanovic. On December 25, 2001, ImClone learned that the Food and Drug Administration had rejected the company's application for approval of Erbitux, a cancer-fighting drug. On December 28, the day after Stewart sold her shares; ImClone publicly announced that the Erbitux application had been rejected. Shortly after ImClone's announcement, the Securities and Exchange Commission "SEC" and the United States Attorney's Office for the Southern District of New York launched investigations into trading in ImClone stock in advance of the announcement to the public of the news about Erbitux.
You will be placed on either defense or prosecution. Respond according to your placement. (I am prosecution)
The stock market is an enigma to the average individual, as they cannot fathom or predict what the stock market will do. Due to this lack of knowledge, investors typically rely on a knowledgeable individual who inspires the confidence that they can turn their investments into a profit. This trust allowed Jordan Belfort to convince individuals to buy inferior stocks with the belief that they were going to make a fortune, all while he became wealthy instead. Jordan Belfort, the self-titled “Wolf of Wall Street”, at the helm of Stratton Oakmont was investigated and subsequently indicted with twenty-two counts of securities fraud, stock manipulation, money laundering and obstruction of justice. He went to prison at the age of 36 for defrauding an estimated 100 million dollars from investors through his company (Belfort, 2009). Analyzing his history of offences, how individual and environmental factors influenced his decision-making, and why he desisted from crime following his prison sentence can be explained through rational choice theory.
Main Issue In 2000, Rich Kender, Vice President of Financial Evaluation and Analysis at Merck & Company was discussing the opportunity of investing in licensing, manufacturing and marketing of Davanrik, a drug originally developed to treat depression by LAB Pharmaceuticals. LAB proposed to sell the rights of all the future profits made from the successful launch of Davanrik at the cost of an initial fee, royalty payments and additional payments as the drug completed each stage of the approval process. Merck & Company's organizational goal is to constantly refresh its drug development portfolio and reach as many customers as possible during the patented period. So there was not only the potential of financial gain or quantitative aspect of the offer, but also the qualitative value which will be added by getting better positioning in the risky pharmaceutical industry.
Bernard Madoff opened his firm in 1960. His business began to grow when his father-in-law Saul Alpern, who was an accountant, came to the firm. Because there were a lot of competitive firms at that time, Madoff decided to use innova...
Jordan Belfort is the notorious 1990’s stockbroker who saw himself earning fifty million dollars a year operating a penny stock boiler room from his Stratton Oakmont, Inc. brokerage firm. Corrupted by drugs, money, and sex he went from being an innocent twenty – two year old on the fringe of a new life to manipulating the system in his infamous “pump and dump” scheme. As a stock swindler, he would motivate his young brokers through insane presentations to rile them up as they defrauded investors with duplicitous stock sales. Toward the end of this debauchery tale he was convicted for securities fraud and money laundering for which he was sentenced to twenty – two months in prison as well as recompensing two – hundred million in restitution to any swindled stock buyers of his brokerage firm (A&E Networks Television). Though his lavish spending and berserk party lifestyle was consumed by excessive greed, he displayed both positive and negative aspects of business communications.
This case study is not about Ms. Stewart direct participation with illegal insider trading as the media had steered the public to believe. To begin, Ms. Stewart received a phone call from Ann Armstrong, her assistant, stating that Peter Bacanovic, her stockbroker, “thinks ImClone is going to start trading down.” (Arnold, Beauchamp, Bowie, 2013, p. 390) Although Ms. Stewart was not able to get a hold of Peter, she talked to his assistance, Douglas Faneuil,
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).
Insider trading has been occurring since the beginning of the stock market. There are opposing viewpoints as to whether or not this activity is ethical or not. The underlying issues at play are those of fairness versus efficiency. Those who support fairness in the market argue that because insider trading makes use of material information that is not available to the public that this activity gives an unfair advantage those who possess such information. The opposing viewpoint is that insider trading makes the market more efficient because information is the key to market efficiency. So the question is, “Is insider trading unethical.” To shed some light on this question this paper will analyze the Mark Cuban insider trading case using two ethical theories. The first is the theory of utilitarianism and the second is the theory of the categorical imperative.
Jordan Belfort is the notorious 1990’s stockbroker who saw himself earning fifty million dollars a year operating a penny stock boiler room from his Stratton Oakmont, Inc. brokerage firm. Corrupted by drugs, money, and sex, he went from being an innocent twenty – two year old on the fringe of a new life to manipulating the system in his infamous “pump and dump” scheme. As a stock swindler, he would motivate his young brokers through insane presentations to rile them up as they defrauded investors with duplicitous stock sales. Toward the end of this debauchery tale he was convicted for securities fraud and money laundering for which he was sentenced to twenty – two months in prison as well as recompensing two – hundred million in restitution to any swindled stock buyers of his brokerage firm. Though his lavish spending and berserk party lifestyle was consumed by excessive greed, he displayed both positive and negative aspects of business communications.
Albert has committed insider trading by accepting information from his uncle that was obtained illegally. This is also highly unethical to use this information. The second unethical behavior Albert conducted was to ignore or not say “no” to Barry’s offer to put through his and Mary’s trades before other clients and also illegal. Albert should not have traded his uncle’s and his uncles friends’ stocks into high-risk markets. This was illegal as well as unethical and may be a violation of the “consumer protection law” since Allen did not have permission to trade in non-risky stocks. The Federal Trade Commission (FTC), another governing body, may, work in tandem with the SEC to investigate the wrong doing in this case since it involves
Have you ever invested in the stock market? If so, do you know where your money is really going? The stock market is a risky business and it can make or break people’s lives. The stock market is used to daily to keep America on its trembling feet; it’s also being used at this very moment to cheat people out of money for personal gain. This happens every day in the stock market and its evolving rapidly, super computers that can trade faster than a blink of an eye, social media trends that can predict share values, and intricate stock market schemes that are getting harder and harder to find and take down. While the stock market keeps the world turning and the economy steady, the stock market is also being used in manipulative ways that are not always legal.