Insider Trading In our economic economy today, we have gotten a few high profile cases were people have tried to make money by using illegal tactics, and these are illegal tactics are based on the insider information. These high profile cases were on Martha Stewart and President George W. Bush. This is why I chose to write my paper on what exactly "Insider Trading" is. Insider trading has to do with stocks, on the stock market. The stock market is basically an organized place where stocks and bonds are traded.
The members of this exchange usually buy and sell the stocks for others while charging a commission for doing this work for their clients. Although more and more people are now trading online stockbrokers are not as in demand for their services as they once were which is why Charles Schwab investment firm has laid off more then 1800 workers in this past month, which amounts to a 10 percent reduction in the work force. There are certain limitations on stocks before they can be traded and listed on the stock market. The New York Stock Exchange (NYSE) the largest in the United States was founded in 1970 and handles over 70% of all trades.
Then there is the National Association of Securities Dealers Automated Quotations (NASDAQ) which is the fifth largest stock trade in the world. On the stock market there are a lot of illegal things that go on that are unethical. The most known crime that goes on is insider trading scandals. The way insider trading occurs is when one person or many people have information on a company that the rest of the public doesn't know of and use it to make a profit on the stock market. This trading in the United States has been illegal since 1934 and is protected by the Securities and Exchange Commission (SEC).
This requires all companies to disclose statements to the public before offering any securities on the public market. The SEC views insider trading unfair to the investors. The SEC also regulates stock exchanges, brokers, and dealers in securities, and also sets the margins for bank credit in security trading. So basically the law prohibits "insider trading", the way insider trading happens is when corporate directors and officers find out information on their company because of the position they hold before anybody else does is known as inside information. This information can and probably does have an impact on the company's future on the market of value. So it is obvious that their position in the company gives them an edge over the public and other shareholders.
It is not always the corporate directors and officers that who find out this information first it can range from the lawyers to the person that prints out the companies' financial papers. Basically anybody who has knowledge of a companies future weather in being good news or bad, the person can profit from it. This person can often make profits trading stocks by using the inside information he has to guide his decisions on buying or selling of the stock. The rule that stops firms from allowing their insiders to trade is rule 10 b-5, which is the SEC's, law against insider trading.
Rule 10 b-5 comes from 10-b the 1934 act, which is a provision that allows the SEC to prohibit "any manipulative or deceptive device or contrivance." This basically means that the federal law does not prohibit insider trading, and the insider trading crime was not defined or expressed in any statues, or rules administered by the SEC. The federal securities law only offers one cure for insider trading and that is an injunction against future violations. Some firms think insider trading should be allowed because if you look at it from a property rights perspective, some firms will be able to reduce the salaries they pay their employees. Although not all firms believe in this thought for it wouldn't be as compelling for them and it is unlikely to be advantageous for all firms. The trading for insiders would reduce their salary demands and could also be in the interest of shareholders, because it would bring shareholders and managers together to reduce the risk the other might face. So shareholders and managers can share the information they have with one another, which could hardly be considered unfair to the shareholders.
Then there are others who still believe insider trading should remain illegal because it is unfair along with many other reasons. During the early days of regulating insider trading the system searched for an internally consistent justification for banning such trading. That was culminated by the decisions the supreme court handed down in the early 80's on two important insider trading cases the first was Chiarella v. United States and the second was Dirks v.
SEC. These were the two cases that brought some sense of what the law meant by inside information regarding the insider trading law. Then in the early 1990's is when the judgment was used again in the two cases involving insider trading the first was criminal was Ivan Boesky and the second was Dennis Levine. Both of these men were sentenced to jail, and bosky was banned from ever trading again and also ordered to repay 100 million in illegal insider trading profits. Then with the prosecution of Boesky it unveiled a ring of insiders and led to Michael Milken, the famous junk bond deal maker for Drexel Burnham Lambert. Junk bonds are of fairly high risk, but they also pay out at a higher rate of interest.
These junk bonds were commonly used to raise capital in the early 80's when companies needed money to buy out other companies. So in 1989 the federal jury handed down a 98-count indictment against Milken for violations of federal securities and racketeering. In 1990 Milken p led guilty to security and fraud charges of insider trading, and the more sever counts against him were dropped. The regulation of insider trading can't be judged on the grounds that it promotes the goals and efficiency, market integrity, or fairness.
The real reason for banning insider trading was for trading stocks based on knowledge the rest of the public was to be thought of as theft. In conclusion this paper on insider trading is not to show the good of it, but that it cannot be harmful if done the right way. And for those companies not willing to participate in insider trading have a contract with their employees giving them more money in salaries, rather then giving them inside tips on potential stock trading tips. Bibliography 1) web 2) web) web press insider trading.
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