Insider Trading - Raj Rajaratnam Case

1902 Words4 Pages
bulb-icon

Recommended: Insider trading unethical

Insider Trading - Raj Rajaratnam Case

Starting as early as the 17th century, insider trading was being used in the European Stock Exchange. (5) This was a place where the government could buy or sell off a security such as a bond. (3) In 1789, William Duer was appointed as Assistant Secretary under the first Secretary of Treasury, Alexander Hamilton. William was the first individual to use the information he gained from working as assistant secretary to become the first inside trader. (5) This also was the start of illegal insider trading and because of this incident, in 1792, the stock market crashed.
According to the United States Securities Exchange Commission (SEC), “Illegal insider trading refers to the buying or selling of security, in breach of a fiduciary duty or other relationships of trust and confidence, while in possession of material, nonpublic information about the security.” (2) There are various examples of illegal insider trading cases. When corporate officers, directors, and employees of law, banking, and printing find confidential information about the development of the business and trade its corporation’s securities, it is consider a crime. When people take advantage of the information given to them, they take advantage of their employees, which can possibly lead to termination.
Insider trading occurs in many countries, but the consequences for the illegal act may vary between all countries. In Norway, Alain Angelil was convicted in a district court on December 9, 2011 with the longest sentence in Norwegian history, which was 8 years. (36) (37) In the United Kingdom, its regulators have a difficult time prosecuting those of committing the illegal act. They mainly rely on the series of fines given to tr...

... middle of paper ...

... Rajaratnam hedge-fund Galleon Group. The group had over $1.5 billion dollars invested with many Sri Lankan companies (Ondaatjie, 2009). Once Rajaratnam was indicted many investors decided to pull their funds out of Galleon Group. This created chain reactions that led to all investors pulling their money from the hedge fund. Millions had to be removed from Sri Lanka to pay back its investors. This left many Sri Lankan companies with little cash on hand to continue operation and expansions.
Unfortunately insider trading will continue to be a widespread crime on Wall Street until tougher laws are enacted. Raj Rajaratnam was turned into an example of what could happen if an individual commits securities fraud. Nevertheless, with the allure of the large amount of money made available from insider trading we will not see this crime slowing down anytime soon.

Show More
Related

  • Jordan Belfort Research Paper

    562 Words  | 2 Pages

    Jordan Belfort is famous for his crooked way of earning his millions as a stockbroker on Wall Street. Even Belfort started at the bottom, on his first day in Wall Street he was told he was “lower than pond scum”(Belfort 1). After writing a book about his happenings on Wall Street, we’ve seen the

    Read More

  • Insider Trading: The United States V. Newman Case

    1106 Words  | 3 Pages

    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

    Read More

  • Insider Trading: SEC v. Mark D. Begelman

    624 Words  | 2 Pages

    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.

    Read More

  • Martha Stewart Case

    973 Words  | 2 Pages

    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

    Read More

  • Computer Fraud And Abuse Act (CFAA) Of 1986

    1015 Words  | 3 Pages

    The Sarbanes-Oxley Act was drafted to encourage and protect whistleblowers from retaliation after the fraud scandal that cause the collapse of Enron in 2001. In a 2010 Senate Report found that “external auditors detected only 4.1 percent of uncovered fraud schemes, “whistleblower tips detected 54.1% of uncovered fraud schemes in public companies” and were thirteen times more effective than external audits” (Turpan, 2016). Whistleblowers serve an important service to the public and are more effective than external audits. The CFAA has been used to by employers to retaliate against employees who act as informants for agencies like Internal Revenue Service or Security Exchange Commission to expose fraud. There employees, not to their financial gain, gather information as evidence of fraud by the company. With a broad interpretation of CFAA, the employee would "exceed their authority" and was "unauthorized" to access the information, therefore allowing the company to hide their illegal

    Read More

  • Disclosure of Executive Health Information: Balancing Investor Rights and Executive Privacy

    1796 Words  | 4 Pages

    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.

    Read More

  • Rogue Bank Case Study

    1362 Words  | 3 Pages

    Svoboda and Robles both broke the misappropriation and tripper (tippee) theory. In Bailey article, he mentions that the misappropriation theory requires courts to focus on whether a fiduciary relationship, or similar relationship with a "duty of trust or confidence," exists (2010, p.541), and tripper theory obtains an individual who received confidential information from the insider individual. Svoboda and Robles violated the fiduciary duties which are the duty of loyalty and care. When Svoboda brought in an outsider, Alena, to complete the task, he broke the duty of loyalty and care toward his company, but then was disloyal to Robles when Svoboda prepared his own trade security. Under Section 10b and rule 10b-5, if an individual using confidential information and then assist another individual, the individual is liable for the trading of the confidential information if they are aware of the fiduciary duties. As a tippee, Robles was liable for trade securities because he was aware of the policy of the Rogue Bank. Bailey (2010) provides an example regard to the SEC v. Texas Gulph Sulfur, when the Second Circuit held that an investor is prohibited from using non-public information to his advantage, regardless of how the investor received the information and the explanation for this situation was to ensure all investors were provided with equal

    Read More

  • Conscience In The Great Gatsby By F. Scott Fitzgerald

    880 Words  | 2 Pages

    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.

    Read More

  • AICPA Code Of Professional Conduct

    1359 Words  | 3 Pages

    The law requires auditors to report any fraudulent activities discovered during the course of an audit to the SEC. This is when Article I of Section 51 of the AICPA Code of Professional Conduct comes into play. The auditor may uncover illegal acts or fraud while auditing the financial statements of a company. In such instances, the auditor must determine his or her responsibilities in making the right judgment and report their discovery or suspicions of the said fraudulent activities. Tyco International is an example of the auditors’ failure to uphold their responsibilities. Tyco’s former CEO Dennis Kozlowski and ex-CFO Mark Swartz sold stocks without investors’ approval and misrepresented the company’s financial position to investors to increase its stock prices (Crawford, 2005). The auditors (PricewaterhouseCoopers) helped cover the executives’ acts by not revealing their findings to the authorities as it is believed they must have known about the fraud taking place. Another example would be the Olympus scandal. The Japanese company, which manufactures cameras and medical equipment, used venture capital funds to cover up their losses (Aubin & Uranaka, 2011). Allegedly, thei...

    Read More

  • Did Martha Stewart Engage In Insider Trading?

    303 Words  | 1 Pages

    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.

    Read More

  • Remembering the Frauds at Enron and WorldCom

    2739 Words  | 6 Pages

    "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.

    Read More

  • Martha Stewart Case Study Summary

    1007 Words  | 3 Pages

    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,

    Read More

  • Insider trading

    614 Words  | 2 Pages

    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.

    Read More

  • The Securities And Exchange Commission

    537 Words  | 2 Pages

    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

    Read More

  • The Wolf of Wall Street

    1300 Words  | 3 Pages

    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.

    Read More

More about Insider Trading - Raj Rajaratnam Case

Open Document