Stock exchanges worldwide are complex, seemingly sentient centers of trade. Many transactions are processed at such exchanges and millions of dollars can change hands in an instant. Due to the immense number of transactions, fraudulent practices and backroom deals can thrive if they function unchecked. One such practice is known as insider trading. Insider trading is the practice of buying or selling shares of stock with knowledge of how well the company will do not available to all stockholders. Most people in the stock exchange community regard insider trading as amoral, corrupt, and unethical because of the fear that the trading might hurt or weaken the stock exchange itself. The size of the stock markets makes most traders fear a crash and exempts the market from the economic laws that govern the rest of the business world. If a person were to buy a car or a home wouldn’t he or she shop around for the best deal and attempt to gather all the information about the product they were buying if they could. The same could be said for finding a low interest rate on a loan and the same should apply to stock exchanges. Certain types of insider trading are legal. Let’s consider two different scenarios presented in When Is It Legal To Trade on Inside Information (Shell). The first scenario begins with an average person riding in an elevator to work one morning. This person overhears some executives of a company, which is run on a different floor that their company is being bought by a larger more powerful company. The executives are discussing how much their stock options will be worth once the buyout process is complete. The person then decides to, upon returning home, invest a large chunk of money in the executive’s company and proce... ... middle of paper ... ..."Applying Ethics to Insider Trading." Journal of Business Ethics 2008: 205-217. Procon.org. 1-minute Overview Should Insider Trading be Allowed/. 11 August 2009. January 2010 . Shell, Richard G. "When Is It Legal To Trade on Inside Information." MIT Sloan Management Review Fall 2001: 89-90. Sternberg, Elaine. "Insider Trading." Just Business: Business Ethics in Action (2000). Tighe, Carla and Ron Michener. "The Political Economy of Insider-Trading Laws." The American Economic Review May 1994: 164-168. Treynor, Jack L and Dean LeBaron. "Insider Trading: Two Comments." Financial Analysts Journal May/June 2004: 10-12. United States v. Bryan. No. 58 F.3d 933. Fourth Circuit. 1995. Werhane, Patricia H. "The Indefensibility of Insider Trading." Journal of Business Ethics September 1991: 729-731.
Jeffery Archer is accused of insider trading with the shares of Anglia TV. Jeffery bought shares for the “inside information” of the companies dealing account, the day after the last board meeting but before the bid was announced. He should have known that even if he found out insider information from his wife the law makes it clear that he cannot deal or trade with that stock. It would be considered unfair to the rest of the shareholders, because other shareholders would not have the same information like Jeffery. As we know the buying and selling of shares must be based on public information
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
Fuchs, Erin. “Mark Cuban Slams Insider Trading Case As ‘A Horrific Example’ Of How Government Works.” Business Insider.com. Business Insider, Inc., 16 Oct. 2013. Web. 2 Feb. 2014.
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.
Ethics policies are implemented in almost all businesses. Companies search for candidates that will be moral in their actions so they can ensure long-term financial success. Throughout history we have seen businesses fall due to unethical behavior. In recent years the business Enron Corporation is best known for the scandal that led to the bankruptcy of a company with more than 60 billion dollars in assets. We will examine the circumstances that led to the downfall of Enron, how the scandal was realized, as well as the outcome of one of the largest bankruptcies in American history; a case that exemplifies unethical professional behavior.
Madura, Jeff. What Every Investor Needs to Know About Accounting Fraud. New York: McGraw-Hill, 2004. 1-156
Ponzi schemes are a continuing problem in the investment world and can only be stopped if the Securities and Exchange Commission does better safe guarding investors’ money. This paper will address Bernie Madoff’s Ponzi scheme and how he was able to steal billions of dollars from investors. The reasons why the SEC responded so slowly to Bernie Madoff’s Ponzi scheme, and what can be done in the future to make sure another Ponzi scheme of this magnitude does not happen again. Also included in this paper will be examples of good and bad leadership theories.
The use of insider information is illegal in the United States. Insider information is stock related information that can be obtained many ways to gain large, abnormal gains in the stock market. A popular way to gather inside information is from direct employees of the company. Information on stocks can either be illegal or legal. If the information is publicized for all current or future investors to use, then it isn't illegal. Illegal information becomes unlawful when it becomes privatized from the public, and to be only used by investors in the stock market. The action of using insider information isn’t considered illegal until the information is used in a stock market located in the United States, most commonly the New York Stock Exchange, or NYSE. Investors shouldn't need to worry about whether the information they’re given is illegal. Instead, the government should become lenient and abolish the act that prohibits investors to use insider information. Investors need to come together to protest against congress. If we abolish the act that forbids investors to use inside information, then the economy in general will grow from the freedom given by the government.
Mackay, Tim. "The Ethics Of The Wolf Of Wall Street." Charter 85.2 (2014): 67.Web. 23 Mar. 2014.
Other schemes employed by promoters (and the promoters’ hirers) include closing price manipulation, wash trading, and message board spamming The illegal practice of closing price manipulation (also known as “painting the tape”) is a way for promoters to push a stock’s closing price to an artificially higher level. Promoters might use this tactic to make a certain stock “green” for the day (close at higher price than the previous day’s close), when in reality it should have appeared negative for the day (close lower than the previous day’s close), thus making the stock more attractive to investors. It is important for promoters to present a certain image of a stock to investors—often that means manipulating prices in a way that appeals to an investor’s psyche.
Whereas, the actions of Sam Waksal, CEO of ImClone, were considered insider trading and illegal. Insider trading is when information is used to make a timely sale when the public doesn’t have access to the same information (Boatright, 2013). The law requires that if the information is considered important by a reasonable investor then it is illegal insider trading (Henning, 2012). Mr. Waksal knew about the FDA rejection of his company’s drug trial and tried to sell all his stocks before the public got a chance to review the same information and perhaps be able to execute similar sell orders.
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 of certain sorts of employment.”(Insider Trading). But since the latter part of the 1960’s, stricter enforcement of insider trading practices have been put into place because of financial scandals.
In the United States, the term executive compensation has many factors that have driven change in the landscape of executive compensation. Examples of those elements include the turmoil in commodity prices, market volatility, and political pressure for the reform of the executive compensation. Further, the executive compensation in the U.S. beats the average worker’s salary growth by a wider margin. However, when looking at the Sarbanes-Oxley Act which was supported by Paul Sarbanes and Michael Oxley represented a massive adjustment to the securities law. Further due to the Sarbanes-Oxley Act, publicly-traded and privately-held companies are obligated to implement and report in-house accounting controls to the SEC for compliance. Nonetheless, I will expand on whether executive compensation is ethical or unethical in the workplace, as well as if the Sarbanes-Oxley Act too strict or not strict enough as it relates to investors.
Insider trading can be defined as the purchase or sale of securities on the basis of information that has not been made available to the public (Miller & Jentz, 2011). There have been laws made to protect the public from being victims of insider trading. Insider trading gives employees of a company a trading advantage over the public and other shareholders (Miller & Jentz, 2011). The law is The Securities Exchange Act of 1934. The sections 10b and SEC 10b-5 were added to the law to prevent insider trading (Miller & Jentz, 2011). There are many cases of insider trading that can be traced back for centuries.
Law and economic literature on insider trading can be categorized into two categories- agency theories and market theories of insider trading. Agency theories of insider trading deal with the impact of insider trading on firm-level efficiency and corporate value (Jensen and Meckling, 1976). On other hand, Market theories of insider trading analyze the implication of insider trading on market performance (Bhattacharya and Daouk, 2000) e.g. the cost of capital, liquidity and market efficacy etc., for example, Manna (1966) suggests that the insider trading allows stock markets to be more efficiency. Surprisingly, most of the debates on insider trading are concentrated on U.S markets (Beny, 2005).La Porta et al (1998) claim that law and its level of enforcement vary according to countries’ infrastructures, and differences in law and its enforcement may explain variations in market structures and stock market practices among different countries. Moreover, Maug (2002) presents a mathematical model in which a dominate owner has information advantage over small shareholders where insider trading regulations are not properly enforced. Besides, Leland (1992) argues that if the insider trading is allowed, stock prices reflect better information at the cost of less liquidity that magnitude depends on economic environment.