If you have ever traded in the stock market, or have any knowledge about the stock market at all, you surely have heard the term “insider trading”. This term has a negative connotation to most people and is usually associated with illegal conduct. What most people do not know, is that insider trading can be conducted in a legal way. So what exactly is insider trading? It is defined as “the buying or selling of a security by someone who has access to material, nonpublic information about the security”. CEOS and employees of certain companies usually know, or can more easily obtain, information about the company that individual investors and outside people may not know. They may have an insight on future decisions the company is going to make …show more content…
Some say that making decisions based on special, inside knowledge is unfair to other investors. Others think that it is not the insiders fault for having access to additional information just because they work for a certain firm and they should be able to make their own decisions based off the information available to them. Besides both sides of the argument, insider trading can be extremely hard to prove. How do you really know if an insider made their trading decision based on the special information they knew? Maybe it was just a coincidence on when they decided to buy or sell their shares. The U.S. Securities and Exchange Commission monitors the market to try to detect insider trading by looking at trading volumes of certain stocks. Stocks can increase or decrease significantly after material news is announced to the public. But when volumes change dramatically with no new information provided to the public, the SEC takes this as a warning flag. They can then start to investigate and find out why unusual trading patterns are occurring to see whether or not it is illegal insider trading activities. When insiders trade their securities of their firm, the transactions must be registered with the SEC as another way to track insider trading in the market. Insider trading is a complex subject and there are many arguments for both sides. The three main arguments against
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
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...
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 first way the public is affected is through an increase in the wealth gap. Those who are placed high on position of a popular company only get richer with insider trading. It is unfair because the public are missing out on the opportunity to reap the same benefits simply because they do not have the same access. The second way is that the confidence of investors is heavily diminished through insider trading. If a handful of investors are successful in the stock market because of the information they obtain, it leaves space for foul play to be assumed. Other investors in the market can accuse the whole thing of not being fair, and that is exactly what the Government is trying to avoid with the laws they have passed to restrict the unfairness in the stock
Dennis Kozlowski was living his dream as a multimillionaire and if anyone got in the way of his dream to create his empire then they would be stepped on like a bug. This is what happened to Jeanne Terrile at Merrill Lynch. Terrile smelled something funny coming from Tyco and when she acknowledged that something was wrong, she was shut down quickly. Nobody knows for sure if Kozlowski paid off the CEO of Merrill Lynch, David Komansky, or not and nobody knows what they talked about. The fact is that Jeanne Terrile was replaced and the stock recommendation for Tyco soon changed after their talk. Terrile decided to do what she thought was right and make sure to notify people of what she thought of the company. Because of Terrile’s ethical decision
Imagine the head of security at a bank using his years of training in security procedures to orchestrate an incredible heist. This is essentially what happened to the corporate giant Tyco, only the person planning it was the CEO, Dennis Kozlowski and his right hand man CFO, Mark Swartz. Kozlowski and Swartz were at the helm of Tyco and used their experience and skills to carefully plan a scheme, along with the help of other henchman within the company, to siphon money out of Tyco in such a way that even after independent audits and scrutiny by the SEC, the fraud remained unnoticed. Tyco’s corporate was built upon their knowledge of audit procedures and internal controls that they would have learned in their fledgling years as practicing auditors.
Insider trading is the act of purchasing or selling securities based on material, nonpublic information. Information is consider to be material if a reasonable person would use it in such a way that would persuade them to partake in an exchange of securities, or if it was reasonable to believe that it would affect the market price of a security once the information has become public (Carlin 2003). Information can only be acted upon once it has been made public, otherwise, unfair trades would take place that could negatively affect the general public and shareholders of the company. Those who are employees of the company upon employment have a signed agreement to put the interests of the shareholders first. Acting on tips from within the company or other sources could negatively affect the corporation’s success, resulting in a shareholders loss.
Section 303 prohibits an officer or director of an issuer to fraudulently influence, coerce, manipulate, or mislead the auditor. Section 304 requires executives of an issuer to forfeit any bonus or inventive based pay or profits from the sale of stock, received in the 12 months period after the date of issuance of financial statements subject to an earnings restatement (Claw-back Policy). Section 305 allows the SEC bar any person who has violated federal securities laws from serving as an officer or director of an issuer. Section 306 prohibits trading by officers and directors during blackout periods established between the end of a quarter and the earnings report date. Title III focuses on reducing fraud, mostly related to CEOs and CFOs of public companies. Before SOX and this requirement, CEOs and CFOs simply deny in any knowledge of knowing financial wrongdoing. Now, they require to take more responsibilities on what the company is reporting on financial statements. They have to sign off on financial statements that the financial statements are presented fairly to their best of knowledge and internal control of the company is efficient and
The best solution in the trading places for all parties is unethical, but in terms of practical it is in the best interest of the subject the people that got hurt throughout the movie had to come out on top. The bad would have been if the employees got caught with insider trading because they had done something illegal. The bad apple says managers should be looking for the bad apples from their employees, but does not state if the managers are the bad apples themselves. One of the Dukes Brothers who thought nurture is a controlling factor in a person’s success is only part of the equation they need nature because if not the individual can easily turn to a bad apple from just nurture from the fact that their environment has changed.
The second ethical perspective to be observed is utilitarianism. Unlike egoism, utilitarianism focuses on the consequences involved with a decision, and the severity of those consequences. Furthermore, utilitarians would select the decision that has the least amount of consequences involved with a situation. In this situation, this ethical perspective would view leaking company secrets as an unethical action because it would consider all the consequences that would be involved with leaking the company secrets. In Lockheed Martin and Boeing case, a utilitarian would not have gone about the situation like Ken Branch did because the utilitarian would understand if they were caught providing Lockheed Martin company secrets they would lose their
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)”
1. Corporate Law for Ontario Business (2012). Farah Jamal Karmali 2. Business Dictionary (2010). http://www.businessdictionary.com/definition/separate-legal-entity.html
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.
Whistle blowing is an attempt of an employee or former employee of a company to reveal what he or she believes to be a wrongdoing in or by a company or organization. Whistle blowing tries to make others aware of practices that are considered illegal or immoral. If the wrongdoing is reported to someone in the company it is said to be internal. Internal whistle blowing tends to do less damage to the company. There is also external whistle blowing. This is where the wrongdoing is reported to the media and brought to the attention of the public. This type of whistle blowing tends to affect the company in a negative way because of bad publicity. It is said that whistle blowing is personal if the wrongdoing affects the whistle blower alone (like sexual harassment), and said to be impersonal if the wrongdoing affects other people. Many people whistle blow for two main reasons: morality and revenge.
In the modern world, financial markets play a significant role, with huge volumes of everyday dealings. They form part of contemporary economic lifestyle and determine the level of success of many people. Humans have always been uncertain of what the future holds and thus, tried to forecast it. The forecast of course cannot omit the likelihood of “easy money” by forecasting the prices of equity markets in the future.