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.
Sabino, Anthony Michael, and Michael A. Sabino. "From Chiarella to Cuban: The Continuing Evolution of the Law of Insider Trading." 2011.Web.
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.
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.
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).
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.
On September 19, 2008 David Goldman, a staff writer for CNNMoney.com, reported that The U.S. Securities and Exchange Commission (SEC) placed a temporary ban on the short selling of financial companies’ securities. The action was taken as a defensive maneuver to help stabilize trading in the 799 financial companies named in the ban. The SEC reasoned that short sellers where manipulating the stock prices of the named companies and that banning the practice of short selling would restore regularity to the markets (Goldman, 2008).
CEO Kenneth Lay’s ambition for ENRON a company he had helped form went beyond the business of piping gas. Enron went to become the largest natural gas merchant in North America and the United Kingdom. But the reality is, this company business model never worked. This was a company that was so desperate to win Wall Street 's respect that it kept it stocks shares prices going up despite the losses it was incurring in order for executives to keep lining their own pockets. Over the course of this Case Assignment, I will identify the examples of financial reporting misconduct, I will explain the deontological as well as a utilitarian ethical perspective and lastly I will identify the stakeholders likely to be affected by that misconduct.
The wealthy rule the world through manipulations. One way the wealthy manipulate society is through Wall Street, or the stock market. Brokers persuade clients to invest in stocks for prices that are way above their comfort zone. They then turn around and collect fees from those lofty sales. It is a deceitful game that only the fit and callous wins. This happens in “Broiler Room” when Seth cleans a doctor out of his life savings, and destroys his marriage by selling him a stock that didn’t exist. He continued to mislead his clients for his own greedy gain. We see in the movie “Boiler Room”, a mismanagement of fees and broker abuse that is parallel to our lives today (Younger, Todd, & Todd, 2001). A as matter of fact, according to John Bellamy’s article, a poll revealed that 71 percent of the public believes that limits should be imposed on the compensation of Wall Street executives (Foster & Holleman, 2010).
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.
In the late 1700’s, William Duer is believed to have been involved in the first case of insider trading. In the 1920’s, when the stock market crashed, Albert H. Wiggin became a multi-millionaire (Beattie, 2013) thanks to what is now considered insider trading. According to Andrew Beattie, Mr. Wiggin shorted his company by 40,000 shares. However, in the 1920’s it was legal for him to short his own company. There were no rules against it at that time. In the mid 1980’s, one of the most famous cases of insider trading took place. The SEC brought charges against four business men. Michael Milken, Dennis Levine, Martin Siegal, and Ivan Boesky were charged with 98 charges involving insider trading among them. However, not all charges stuck to them (Beattie, 2013). A Wall Street Journal columnist, R. Foster Winans, wrote an article pertaining to a certain company’s stocks. Stockbrokers used his information to purchase the stock from the information he gave them before his article was published. It is also believed that Mr. Winans gained from the profits from the information he provided (Beattie, 2013). Another scanda...