Apr
14
Insider Trading – Josh Solomowitz
April 14, 2015 | Leave a Comment
I remember learning and first hearing about insider trading with the case of Martha Stewart in the early 2000’s. Her stock portfolio manager had told her information about stocks and advised she sell her shares. She proceeded to lie about it when she was asked and was soon arrested for fraud and obstruction of justice – living out a lengthy time in prison.
Insider trading has been around since the formation of the stock market. People who have nonpublic information about companies use it to their own advantage for monetary benefit. I think it’s very hard to prosecute these people – something as easily as “overhearing” in a conversation or just a tip worded carefully could make it very difficult to catch the perpetrator. Intent needs to be proven – something that isn’t always tangible.
I agree with Kidney and believe that the SEC should fry the big fish before they go after the smaller cases. Make an example out of the big guys may scare the smaller ones. The broken window offenders are at fault – yes – but the bigger cases cannot go unpunished. I think the SEC should allocate its funds more appropriately. It will be more costly to go after the big guns but it will be worth it. In addition to that, the crime of “insider trading” needs to be established under the law, in addition to updating older laws that are still relevant today.
I also agree with some of Black’s points. Insider trading can hurt the market – not everyone can be making millions on deals – people lose out too. Too much insider trading could make it very risky for investors, and it presents an uneven playing field. Wall Street millionaires put many people in between themselves and the source of the information to protect themselves. And it works. They have the money to hire the best lawyers to defend them and they get away with it. Changes really need to be made to prosecute the top – they can’t continue to get away with these crimes.
I find it remarkable that more people weren’t arrested following the 2008 financial crisis. I surely believed that people were at fault – trying to increase their profits without caring about the outcome. And the word “outcome” is an understatement – more like catastrophe. The U.S. sinking into a recession, tons of people losing their homes to banks, the U.S. government using tax-dollars to bail out established corporations that were at fault; the list goes on. But not many people were blamed and put in handcuffs. Why? Because being grossly negligent isn’t a crime — they didn’t have the intent. What does this mean going forward? The government set a precedent that it will protect the huge companies that are “too big to fail” and give them a safety net – no matter how much they mess up or how much risk they take.
I equate being grossly negligent to a form of fraud. A company uses its resources to bulldoze and move forward and doesn’t give a damn about the consequences it creates – and then has the nerve to pay it’s fearless leaders millions of dollars in bonuses after they get bailed out? No, I don’t think so. These laws really need to be updated – our society is advancing and moving forward. Our laws need to catch up to us.
