From the above example, it is evident that those trading on the basis of insider information have an opportunity to enter and exit at the correct time. Finally, when the news goes public, the stock goes back to its realistic price level. Insider Trading; Indian Scenario
Historical Background: Insider trading continued unabated until 1970 which in sum and substance would imply that it was practiced for 125 years in a country like India. The security market in India developed through the establishment of the Bombay Stock Exchange was way back in 1875. It was realized that such a system is detrimental to the interest of the Indian stock exchange. In 1979, the Sachar committee said in its report that company employees like directors, auditors, company secretaries etc. may have some price sensitive information that could be used to manipulate stock prices which may cause financial misfortunes to the investing public. The company recommended that there should be amendments in the companies Act in order to curb and prevent such practice. In 1986, the Patel committee recommended
As there were some other difficulties like how to prove the intention of the individual to prosecute him for criminal liability and the all-important nexus between the insider’s knowledge of unpublished price sensitive information and its use for unfair gains is extremely difficult to prove. As to curb such type of manipulative practices to deceive the innocent investors SEBI came up with 1992 regulations regarding insider trading. It imposes an express prohibition on dealing, communicating or counselling on matters relating to insider trading and restrict any dealing in securities of a company listed on any stock exchange on the basis any unpublished price sensitive
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
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
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.
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
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.
One scenario where Mr. Cuban could have committed illegal insider trading could include if he had agreed not to trade before the Mr. Faure had given him the information. Mr. Cuban also could have committed illegal misappropriate illegal insider trading if it could have been established that he and Mr. Faure had a previous history of sharing confidential information. Another scenario could be if Mr. Faure’s lawyer overheard sensitive information that the company would be facing a lawsuit and due to this information he sells his stock in the company. In this scenario the lawyer has misappropriated the information for his personal benefit. The lawyer has a relationship of confidence with Mr. Faure and would reasonably be expected to be trusted with confidential information.
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.
Mr. Martoma worked for a company who invested a large sum of money into some stock. Martoma received inside information from a pharmaceutical company stating that the company wasn’t doing so well. Martoma reported this classified information on a private phone to his boss, because he thought it couldn’t be traced. Mr. Martoma actions were discovered and he was found guilty of insider trading.
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.
But since the latter part of the 1960’s, stricter enforcement of insider trading practices has been put into place because of financial scandals. The first to be discussed is a concrete definition of “insider trading” as it is discussed in this essay. According to the “European Communities 1989 Insider Dealing Directive”, insider trading is the dealing on the basis of materials, unpublished, price-sensitive information possessed as a result of one’s employment. (Insider Trading)” Ivan Boesky pleaded guilty to the biggest insider-trading scheme discovered by the United States Securities and Exchange Commission (SEC). He made $200 million by profiting from stock-price volatility in corporate mergers.
Conflict of interest is a big problem between Enron and its auditing firms. It is believes that Enron’s auditors was hide many information and external auditors never aware or hide the losses in Enron. From audit committees to transparency committees would increase the likelihood that a firm’s key business ricks are transparent to investors (Healy & Palepu 2003, p. 21). Besides, a transparency committee can also help with internal auditor appreciate its primary responsibility lies with the board, not for personal interest and pleasing the leader.
The Martha Stewart insider trading case was a high profile case filled with uncertainty. In order to say whether or not Stewart handled her indictment responsibly, it is necessary to start with an assumption regarding her guilt or innocence. For the purposes of this paper, based on the information I have read about the case, and based on the fact that she was found guilty of all counts (although not all specifications) in her stock conspiracy trial (with the exception of the security fraud charge which was thrown out), I will assume that she is guilty. (courttv.com) Based on that assumption, there are several reasons that Martha Stewart did not handle her indictment responsibly which can be summarized in a recap of the charges: she lied about receiving illegal information leading her to sell her stock, she lied about having a prearranged agreement to sell her stock when it fell below $60 per share, she tried to hamper the investigation by providing false information, and she worked with her broker to obstruct justice and make false statements regarding the scandal. (chicagotribune.com) As the CEO of Martha Stewart Living Omnimedia (MSLO) and as a successful businesswoman motivated to protect her own personal interests, it might be easy to understand the temptation behind her decisions, but the discussion here will be based on whether or not her decisions were responsible.
... the public and private sector. It uses both the weak form and semi strong from to make decisions. When an investor is given both public and private information the investor would not be able to profit about the average investor even if he was provided with new information at any given time. These investors are given name such as insiders, exchange specialist, analyst and money mangers. Insiders are senior managers that have access to inside information of that company. The security exchange commission prohibits that allow of inside information use to achieve abnormal returns on investments. An exchange specialist can achieve above average returns with specific order information on a specific equity. Analysts can analyze whether an analyst opinion can help an investor achieve above average returns. Institutional money mangers work handle mutual funds and pensions.
The Enron Corporation was an American energy company that provided natural gas, electricity, and communications to its customers both wholesale and retail globally and in the northwestern United States (Ferrell, et al, 2013). Top executives, prestigious law firms, trusted accounting firms, the largest banks in the finance industry, the board of directors, and other high powered people, all played a part in the biggest most popular scandal that shook the faith of the American people in big business and the stock market with the demise of one of the top Fortune 500 companies that made billions of dollars through illegal and unethical gains (Ferrell, et al, 2013). Many shareholders, employees, and investors lost their entire life savings, investments,