Ethical Analysis of 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. Utilitarianism is an outcome based theory and focuses on the consequences of an action. Under utilitarianism an action is considered ethical if it has more positive consequences than negative for the most number of people. The first step in applying this theory is to determine those who will be affected by Cuban’s decision to trade on the information he received. In this situation the primary stakeholders would include Mark Cuban himself, the company (Mamma.com), the employees of the company, and the investors. The secondary stakeholders may include the larger community of investors who assume trading is fair, Mama.com’s employees’ families, and Mark Cuban’s employees. The next step in applying this ethical theory is to assess the negative and positive effects of the action. One negative consequence of Cuban’s decision to trade on the inform... ... middle of paper ... ... what the stock market would be like if everyone were to trade on material nonpublic information. If this were to be true then some would have advantages while others would not and the public perceived fairness of trading in the market would decline. This is not to say that there would be no positive outcomes, however, it is logical to assume that not everyone would wish this to be a universal action therefore under the universal maxim insider trading is unethical. Under the second formulation of the categorical imperative people are not to be used as a means to an end. A person who trades on material nonpublic information can be seen as using the person who provided the information as a means or other investors who are not privy to the same information as a means to an end. Therefore under this maxim it is logical to assume that insider trading is unethical.
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
William Evan and Edward Freeman, in their essay “A Stakeholder Theory of the Modern Corporation,” argue that the objective of a company and its managers is not only to maximize profit for its owners and stockholders, but also to balance the benefits received or losses incurred by other stakeholders—employees, suppliers, customers, and the local community, all of whom may be influenced by company decisions. As the owner of MSO, your aim is ostensibly to maximize profits for yourself, but unlike most other indicted CEOs, you have not tried to obtain personal gains at the expense of the stakeholders of your enterprise. Rather, the charges that have been brought against you are for your dealings with another company; in this day and age where investors bemoan the lack of ethics of CEOs who use the power of their position in the boardroom to achieve selfish gains at the expense of their own company and its stakeholders, the charges of insider t...
In other words, its buying and selling of securities that has obtained non-public material information, and in Martha’s case she was guilty of it. “However in an interesting legal technicality, Martha Stewart did not necessarily breach a fiduciary duty to the other investors, since she had no real obligations to inform other investors, which would be the case if she were an officer with company (US SEC, 2009). This being said, if she confessed her actions were wrong, she would not have been convicted of insider trading. Insider trading can be either legal or illegal due to the nature and the timeframe. This was not the road that Martha Stewart decided to take. ‘She instead chose to collide with her broker in an attempt to barricade a story about how there was a standing order for Ms. Stewart to sell her shares” (US SEC, 2009). Martha Stewart had knowledge on the ethics surrounding trading of stock having already been a CEO, she should have known what she was doing, but one can argue that due to her crazy work life, she simply did no think about it. It shows that she is not engaging in illegal behavior. “Martha Stewart displayed her morality lies when lying to the US authorities even thought this was obviously illegal and unethical; her action can also be analyzed through egoism philosophy where right or acceptable behavior defined in terms of consequences to the individual, regarding maximizing self0interest” (Carr, 2002). Martha Stewart thought she did everything right, but still did not bother to warn the shareholders. If insider trading had not taken place, it would be less of a crime, but her actions indicated unethical behavior and define lack of integrity, and lying to Federal investigators only made it
There are many instances of insider trading that have taken place in the U.S. stock exchange. The Federal Reserve and The Federal Government have clearly stated that insider trading undermines the law and is illegal, but individuals insider trade anyway.
Mackay, Tim. "The Ethics Of The Wolf Of Wall Street." Charter 85.2 (2014): 67.Web. 23 Mar. 2014.
...y analysis of ethical behavior that surrounded the financial events of Bernie Madoff, and the events that surrounded Enron.
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,
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.
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.
Enron and Arthur Anderson were both giants in their own industry. Enron, a Texas based company in the energy trading business, was expanding rapidly in both domestic and global markets. Arthur Anderson, LLC. (Anderson), based out of Chicago, was well established as one of the big five accounting firms. But the means by which they achieved this status became questionable and eventually contributed to their demise. Enron used what if often referred to as “creative” accounting methods, this resulted in them posting record breaking earnings. Anderson, who earned substantial audit and consultation fees from Enron, failed to comply with the auditing standards required in their line of work. Investigations and reports have resulted in finger pointing and placing blame, but both companies contributed to one of the most notorious accounting scandals in history. There remains much speculation as to what steps could and should have been taken to protect innocent victims and numerous investors from experiencing the enormous loses that resulted from this scandal.
Carr illustrates his point with a poker analogy. According to Carr just like poker has ethics of its own, business also has ethics of its own which differ from the standard rules of morality. People who are playing poker do not obey to the same moral rules that they would follow in other situations. Carr demonstrates that in poker, lying and dishonesty are benefits; whereas in normal circumstances those traits are immoralities. It is therefore a mistake to judge business practices by rules of everyday morality. Thus, by businesses obeying their own moral standards their practices are morally acceptable. However, a person can argue that business is not a game and that people’s means of support is at stake. In addition, it is highly unclear that consumers or stakeholders have accepted these rules or are in on this “game”. In poker, one chooses to play the game and accepts its rules; however, in business one is forced to play the game of business. William Shaw is one of the people that criticized Carr’s claim and responds that Carr is defending a kind of ethical relativism. Ethical relativism refers to the idea that what is right and wrong depends on one’s own culture or society. Shaw agrees that the consumers of business have no choice of playing the game of business therefore ...
This paper discusses the role of ethics in corporate governance. I seek to show the application of moral and ethical principles in corporate governance. Ethics is a topic that has generated a lot of interest in the last decade especially after high profile scandals. The failures of prominent companies such as WorldCom, Enron, Merrill lynch and Martha Stewart portrays the lack of corporate ethics. The failure of such business has seen an increased pressure to incorporate ethics in corporate governance. The result of corporate scandals has been eroding investor and public confidence. The entire economic system has experienced some form of stress from loss of capital, a falling stock market and business failures.
When an ethical dilemma arises within an organization, it is difficult to separate right and wrong with what is best for the majority. Sometimes the answer is not a simple “yes” or “no.” In 2002, Enron Corporation shows us just that. By 2002, the sixth-largest corporation in America filed for Chapter 11 bankruptcy. The case of the Enron scandal is one of the best examples of corporate greed and fraud in America.
According to Carol Padgett (2012, 1), “companies are important part of our daily lives…in today’s economy, we are bound together through a myriad of relationships with companies”. The board of directors remain the highest echelon of management in any company. It is the “group of executive and non-executive directors which forms corporate strategy and is responsible for monitoring performance on the behalf of shareholders” (Padgett, 2012:1). Boards are clearly critical to the operation of companies and they are endowed with substantial power in the statute (Companies Act, 2014). The board is responsible for directing and steering the company. The board accomplishes this by business planning and risk management through proper corporate governance.