Apr
13
Insider Trading-Class #20-Gerald Lizzo
April 13, 2015 | Leave a Comment
Prior to reading the these two articles on insider trading, I had not heard of this trial before and although I knew insider trading was a controversial topic, I did not realize the issue ran this deep. The case of the Unites States of America v. Todd Newman, Anthony Chiasson was clearly a landmark decision made by the U.S. Court of Appeals for the Second Circuit. The Court essentially ruled that it is only insider trading if the trader knew the tipster breached a duty of trust in exchange for personal benefit. This is an incredibly hard fact to prove, essentially in the case of individuals did not receive the tip directly from the original source.
This revealed the issue of the laws surrounding the topic in general. First of all, as a result of the decision of this case, it has essentially become more or less impossible to effectively try and convict insiders, or “big fish”. Hence, the law is ineffective and the courts themselves do not fully know how to interpret them. This is a serious issue within our legal system. It calls into question the entire law itself. If we can’t find a way to convict wrongdoers, then should it really even be illegal?
Don’t get me wrong, it is clearly immoral to be conducting insider trading. But for something to be illegal, it needs to be in violation of a law. If there is no way to prove that it is in violation of one, then how can it be illegal? Hence, we want it to be considered illegal then serious revisions to the law are necessary to be able t update to this era. The reality is this world has become very technologically advanced and is by no means at all the same as when the laws themselves were written. Today, nobody uses ticker tape to check stock prices. The average layman can simply Google it and get live price quotes, including the current bid and ask price. You do not to have a trader’s account or anything. But this is not enough. Many computers programs have now been developed based on trading algorithms that can instantaneously react to change. The result is if a company reports earnings above expectations, the stock price will be affected within seconds with millions of shares traded. The layman investor is left completely out of the loop, powerless to capitalize on an earnings opportunity. This is not to mention the issue of high frequency trading and the time it takes for an order to be received depending on its source.
All of these changes mean the average investor has no ability to earn as much money as those in the loop. They are victimized by the lack of morality and the incessant desire for money by others. Consequently, I do not think it is just insider trading that needs to be looked at but these other issues as well. The stock market is anything but a fair game for everyone.
At the heart of all of this is simply greed. As a society I believe we have simply placed too much value on money. I have said this before in my past blog posts and I think this is the factor that connects issues like these to income inequality and what we have been discussing all semester. Just like income inequality, insider trading seems to favor the wealthy. At the end of the day, however, it is extremely difficult to be able to regulate all of this to make the stock market a “fair game”, but significant regulatory changes are absolutely where we need to start. I just do not know hoe feasible that is because of the staunch opposition it would face from many wealthy individuals.
