Conflicts of interest are at the heart of why insider trading is unjust. Sokol] did nothing illegal, [his action] is typical of the kinds of conflicts of interest permitted by our financial system that undermine the integrity of markets.
Insider trading in financial markets presents various ethical issues, including conflicting rights, differing cultural norms, and inequalities across market participants. Typically, insider trading is considered unfair because all market participants do not have an equal opportunity to exploit the information used to execute insider trades.
These trades take advantage of favorable information to reap personal monetary gain through large sales or seek to avoid heavy losses from unfavorable information. Insider trading makes those who are not privy to such information feel powerless and no longer wish to participate, further interrupting the flow of financial markets. However, some argue that insider trading makes markets more efficient and ensures stock prices are represented more accurately.
Certainly there are conflicting rights at stake, such as insiders freely partaking in trading securities, all traders having equal information, and investors being safeguarded against their own naivety.
Is allowing insider trading always unethical, or can it be considered ethical under certain circumstances? The increasingly global economy creates a vast stage on which insider trading can affect a wider range of stakeholders than ever before. Given this fact, a common ground of acceptable behavior needs to be defined in order for everyone to feel safe investing in the market.
The financial effects of insider trading can amount to hundreds of millions of dollars in high profile incidents, so it is not hard to sympathize with those who are unable to benefit from insider tips.
Such circumstances highlight why insider trading is illegal and generally considered a violation of justice, even though there are competing philosophies that would suggest otherwise. Primary stakeholders directly affected by insider trading include all market participants subject to losses who cannot achieve gains because they are not properly informed.
Market participants include anyone who owns traded stock through financial instruments, including individuals stocks, portfolios, mutual funds , retirement plans, educational savings plans, etc. Primary stakeholders also include the individuals, small groups, or companies who benefit from inside information, such as those who execute trades with non-public information and those who could possibly benefit from knowing about more efficient market prices.
Secondary stakeholders do not necessarily own stock that is traded via inside information, but all other members who suffer losses withdraw from the market because they feel they have been subject to unfair conditions. In effect, the market becomes illiquid and even more competitive. Also, the institutions that facilitate trading, such as investment and commercial banks, may suffer a decline in business, with people choosing not to invest in a market in which they feel they cannot make money against the knowledge of inside traders.
Without trust in the system, it appears likely that all participants lose. This is a major concept of social contract theory and the ethical concept of justice as it relates to insider trading. The controversy over insider trading can be assessed from a justice theory perspective. The concept of justice can mean something different to everyone, because it encompasses a plethora of viewpoints regarding what is fair, which human rights are most important, and how these rights should be judged.
Justice can be considered a subset of deontology or Kantianism because it represents an obligation or duty to the protection of certain rights. Good may be used to refer to anything — it is a general term that expresses positive value about something or assigns positive value to something.
Nevertheless, in philosophy the term takes on special meaning and that meaning is particularly related to ethics. Therefore, the rights at stake may not have been properly prioritized or may even be perverse considering the overall balance of happiness versus unhappiness. Additionally, when considering financial markets, the concept of distributive justice is an important factor. Egalitarian theories focus on a truly equal distribution of outcomes; Desert The idea that a person is deserving of something, whether good or bad, captures the philosophical meaning of desert.
It is importantly associated with other concepts in philosophy, including punishment, justice, praise, blame, and goodness. The following illustrates how desert relates to some of these concepts. Conversely, we tend to think that when a person does not get what he or she deserves, the Justice theory works only in the setting of some sort of social contract, which aids in the ranking of rights as a mutually agreed upon aspect of society.
British philosopher Thomas Hobbes describes a sort of harsh social contract theory based on physical preservation that enables humans to live together in peace and engage in civilized exchanges that benefit all through agreement and enforcement.
If most individuals who enter the global financial market agree to a social contract in which fairness and distributive justice are key features, the contract and conflicting Values Values guide action. In other words, when we value something — or when we have a particular set of values — we think that what we value or the values we have give us reasons to act in particular way. Several factors and conflicting rights affect justice in financial markets, such as informational efficiency and asymmetries, Freedom Freedom is generally described as a state absent of coercion, interference or determination by any internal or external force or authority.
The concept of freedom can be applied to many or most spheres of human activity, including political, economic, relational and metaphysical realms.
The other type of insider trading is wrong and here is why. One of the principal tenants of capital markets is transparency, meaning that all investors have access to the same information. Think of capital-markets transparency this way. Chances are you would not like it if, as a shareholder of a company, the company provided only half its investors with quarterly earnings updates while keeping the numbers a secret from the other investors.
Insider trading is wrong for a similar reason: Why should only a small amount of market participants be privy to information that many more could benefit from? In some examples of insider trading, the illicit act is perpetrated by a person or parties associated with a particular company exploiting nonpublic information for their benefit. In many of these examples, it is information the company intended to make public at some point, but the important theme is this: The information is property of the company.
When insider traders make public information the company has not yet approved for release, the resulting act is akin to a home burglary. Moreover, it could endanger the company and its investors. It may sound like two young children arguing with each other, but the fact of the matter is insider trading is not fair. To start with, making money in capital markets is a difficult endeavor, one that is made even more difficult by the fact that small investors compete against large, deep-pocketed institutions.
At the very least, some semblance of equality is needed to ensure orderly capital markets that encourage broad-based participation. Just my thoughts…. I believe that the ability for one to use insider information cannot be reduced in any near time frame; however these recent charges and signs of corruption will certainly bring light to the flaws of the regulations that are present.
By following due process with cases such as the Rajaratnam trial, the process of how this information is commonly acquired can be made known to those responsible for holding users of the market accountable. By making examples of known cases and learning how these corrupt actions were able to exist, the regulatory arm of the market can develop methods of reducing the ability for users to advantageously manipulate the market. While there is not a light switch to turn off insider trading, there can be regulations adopted over time to adjust the ability for these acts to occur.
The line must be drawn of what is right and wrong and clearly defined for users of the market. Through enforcement and persistence of ensuring that justice is sought after during these cases, the regulations will adapt and better enforcement will prevail.
I believe that insider trading is wrong. It allows those whose duty it is to protect the interest of shareholders to profit from the trust placed in them. In addition, without trust in the markets, buyers and sellers are less likely to participate. Thus, while you would have a more efficient market with insider trading, you would also have a less liquid market.
So, while insider trading is wrong from a duty perspective, the benefits that it would confer may be minimal. I feel that a person does not just develop the sense that insider trading is wrong overnight, but instead I feel that it is a process that never ends. We have the duty to keep confidential and privileged information just that-confidential and privileged.
If the general public is supposed to know about it, they will. The next step is continuously telling oneself that insider trading is wrong. We have to continue to keep an ethical mind and resist the temptation of making an easy buck on the expense of others through insider trading.
With all of the insider trading cases coming to the attention of the public, I feel that this might be the scare that people need to question themselves before becoming involved with insider trading, Not only does someone get the natural instinct that this is wrong and unfair, but seeing the consequences of discovery happening more frequently could potentially frighten people from any pre distinct notion of becoming involved.
One could argue that getting insider trading information should be legal to those receiving the information because they have worked their way up the totem pole enough to deserve to have that knowledge. This ratification is what could override any consequences of discovery, and unfortunately, is what most people will likely believe. This is why I believe it is very important for the SEC to keep such a close watch on insider trading, and the SEC has been doing a great job on this recently.
The good work needs to be kept up in order to try and successfully do away with insider trading as much as possible. I think it is true that insider trading increases the efficiency of the market. I also think it is true that insider trading leaves the stockholders who are unaware of the insider information broke. For the insider who worked very hard to gain prominence in his firm, it is fair for him to partake in insider trading. For the stockholders who invested their hard earned money in the stock market, it is fair for them to say that insider trading should be illegal.
When I put myself on both sides of the issue, I can easily see the argument for both options. That is when I switch to my true versus false mentality. In a given situation, if it is true that a person or group of people get hurt, lose money, or lose any part of themselves in the process, then I believe it is wrong.
I think some experts have crossed the line and do not neccesarily even know that they have done so. It seems as people get closer and closer to the line, the grayer and less defined the line becomes. Insider traders often rationalize their actions based on arguments related to market efficiencies, but I think it would be a lot harder to justify insider trading if they were truly thinking about the people being affected by their trades. One characteristic of the global market is that the buyer and seller are virtually invisible to each other.
The thing that stuck with me most from this blog was the mention of the Enron executives who were dumping their stock during the transition between penion plan providers. The first time I heard the story of Enron in a classroom setting was during my first Accounting class. There are many tragedies that surround that story but I think the most unsettling for me has to do with the transition between penion plan providers and the Enron employeesnot being unable to move their stock while the top executives could.
It really does remind me of a Titanic- like scenerio where the rich are the first and only ones on the life boats and the rest of the passengers are left to take their chances in the freezing water.
It definitely brings to light an inequality in the market place which I think the laws against insider trading try to remedy. To me, no matter which ethical reasoning you use, duties, consequences, or virtue, insider trading is wrong. Therefore, I have to believe that not much ethical reasoning is behind these decisions, simply greed.
No thinking involved, just the promise of free ice cream. Because of this lack of ethical reasoning, I feel govenment must continue to enforce insider trading laws. I definitely agree that insider trading is immoral, but I can also see how it increases efficiency in the market place.
I like to think of insider trading as Kant would using the categorical imperative. The markets would become highly efficient because of the influx of information, but only a select few would reap the greatest profits. I also think that investors should be required to keep documentation of their use of experts.
This documentation might include recordings of their conversations and support showing how they used this information along with their own due diligence to make their investment. This way they can be held accountable for their actions.
I believe that insider trading is one of those types of crimes that is going to happen no matter how many people are put behind bars, or how much in criminal charges are paid out. I do agree that is is extremely unfair but unfortunately, to the Wall Street geniuses and high-end executives, it is easy to do, therefore, it will happen.
I also agree that it increases market efficiency and it is one of those topics that make you wonder how the economy would be without it happening so often and for so long.
On another note, my personal issue with insider trading is that it seems like the easiest type of fraud to fall into. Business people live in a competitive, fast-paced environment everyday with constant learning.
That mixed with the fact that we are naturally driven by bias decision making, whether we know it or not, insider trading is an evil that seems almost inevitable do not worry I do not involve myself with insider trading or ever plan to, its just a point. To me, this is a grey topic because at what scale is it considered insider trading? Do the more ethical business people only invest small amounts while involving themselves with insider trading?
Bringing the people like Raj Rajaratnam and others to the public eye daily is the only thing reminding us that it is wrong and no matter how easy or tempting it is, stay away from insider trading! Insider trading is a double-edged sword. It accelerates the efficiency in the market and benefits the key player, but it takes away from the people playing the game the right way and potentially imprisons the guy selfishly acting on his immoral greed.
Is it worth throwing everything away for some extra cash? What startles me the most is that these white-collar criminals were most likely just like us. Probably went to a great school, had big dreams of becoming successful and having a family, when and why did they decide to push their morals aside and give in to corruption? I just hope our generation will stick to our ethical standards and not fall into this immoral temptation. Clearly, there should be stricter forms of monitoring and punishment available for those that feel they have the right to manipulate the market in their favor.
From my understanding, an executive at a company can still buy and sell as long as it is reported to the SEC. I think the only stipulation is whether or not the company buts a hold on the executive buying and selling.
So in a case like this it could be perfectly legal for the executive to commit insider trading and get away with it. If you are buying or dumping stock, you should have to use the same information that is available to the public. He clearly purchased Lubrizol stock and then helped convince Berkshire to buy Lubrizol raising the Lubrizol stock price. This is clearly a way of taking advantage of the market place and more importantly, taking advantage of the investors that he bought out.
I would only hope that the SEC goes beyond a couple sanctions and makes an example of Sokol. The way I see it, if we are trying to make an example out of those committing insider trading, we need to be consistent and stop letting people slide on technicalities. But why not let a top executive receive a few more million dollars? We need to start treating every insider trading case the same and make a point that insider trading is illegal and it will not go unnoticed or unpunished.
People who inside trade are selfish only looking out for themselves, but if they would take the time to think about their actions they should realize how much harm they are causing to everyone else.
I believe that the love of money is the root of all evil. An insider trader is only looking to make money on a deal and not looking at any of the consequences.
When will people see that no good comes from insider trading. People can only get away with so much before they eventually get caught. I do see how there can be a gray line at times of what is right and wrong, but I think it is important to stay as far away from that line as possible in order to avoid making those tough calls. As most people have said, insider trading is not ethical nor is it fair to others not privy to key information.
If everyone was allowed to trade based on whatever knowledge they could obtain, I believe the schemes people would use to get that information might become more and more devious.
Insider trading is unfair. Although all stockholders in a company have the freedom to buy and sell whenever they want, they should all be able to make that decision based on the same amount of information provided. As a professional, I feel that you should not have stock in a company that you could receive inside information on.
I am always stunned by how short-sighted some people are and how much chances people are willing to take. I am not going to go over all the calculations that suggest how wrong insider trading is. I just want to say that from my experience, I think it is a lot easier to make a decision that would benefit someone you know or yourself and hurt the public than one that would benefit the public but hurt the person you know.
I think we can expect more insider trading cases in the future. The Security Exchange Commission was one of a number of regulatory agencies with the mandate to protect the investor, the firm and the consumer.
These three groups of actors in our economy may help explain and validate why economics is indeed the hardest of all subject matters.
Contrary to a unified set of central ideas- economic principles or laws, thank you Alfred Marshall, we are not always rational people who think at the margin. Simply put, we are quite unpredictable. Thank you Mr. Kaynes on that one. Government can at times improve market outcomes-promote effiiency and promote equity but that is also a bit unpredictable.
Does insider trading promote market failure, positive or negitive externalities and market power? Good question. Does the private benefit of insider trading create a social benefit? I think not. Certainly that explains why we have the SEC. Insider trading is such a hot topic right now, and rightly so. Those insiders who decide to act on information they have received are blinded by the extreme glamor of making a huge profit thus forgetting the long-term effects that their actions may have.
So what about those in the marketplace who are honestly trying to make the most out of their money? They are the ones who get the shaft, not the insiders.
One day hopefully we are going to be the honest individuals who are investing our money wisely and attempting to make the best choices in order to maximize our profits and our hard work very well may be thwarted by one of these insiders trying to take the easy way out. Hopefully the regulations that will come out of these recent insider trading scandals will help to keep the playing field more even and better protect us and our investments in the future. The aspect of current insider trading that astounds me most is the magnitude of offenses that continue to occur.
It is nearly impossible to look at any business media without being reminded of insider trading and the numerous industries that are affected. The potential repercussions of insider trading infractions are widely publicized and damaging on both a financial and personal level.
This makes me wonder how sever the punishment must become before insider trading opportunities become less tempting and promt people to reconsider their unethical actions. The constant reminders of insider trading cases should serve as reminders that temptation in our careers is a large possibility and we need to each personally prepare to respond with fairness in mind. In the dilemma with insider trading I can see the duties, consequentialist, and the virtuous character viewpoints but the viewpoint that stands out the most to me is duties.
I believe that as an employee to an organization you have a duty to keep inside information confidential and I also think there is a duty to the public to be fair. I think a lot of the ethical dilemmas we have discussed in class have dealt with fairness.
I would much rather have friends, family, and a good reputation then all the material things in life. Life is too short. I do not believe anyone will disagree that insider trading is wrong but think it is an inevitable situation that will continue to occur in society today. Even while people accused of this crime are prosecuted, I believe the temptation of fast, easy money will be too hard for some people to pass up.
When looking at both sides of the argument, I can see a case for each. However, for investors who place their earnings into companies expecting management to earn a return, this should not have to be an area of concern. Their investment represents a trust in the management team to do what is in the best interest for the shareholders at all times. Like I said, I believe insider trading will continue in the market but hope that the next generation acknowledges something needs to be done.
I believe insider trading is not something that can eliminated from the market. As long as there is an opportunity for someone to make a move on information no one else has there will always be someone unethical enough to make that move. What is surprising to most people is that despite the number of people getting caught and prosecuted by the government, insider trading continues to take place.
I believe the reason is that these people think they are smarter than the government, and know how to get away with it.
Often times they are probably right, I think most people would be shocked if they knew how much insider trading actually went on undetected. While I am not in support of big government, I do feel it is necessary for the government to actively regulate and pursue instances of insider trading in order to keep a level playing field, and encourage investment by traders who want to conduct honest business.
The issue of insider trading is based on an utilitarian view. What will benefit the most people for the greatest good? Insider trading goes against this view because it allows special individuals access to advantages that will harm others.
I agree that it is unfair for these individuals to be able to profit at the expense of others. Insider trading is one of the most sensitive issues in the last decade. By trading on these public-to-be information, you are not actually hurting or stealing from a specific person like criminals do. This crime is not directed towards a person but a group of shareholders.
Due to this reasoning, I feel that any person can fall in the trap of rationalizing the insider trading scheme and implements it with the information they possess.
When I think about insider trading, I try to think about how it would be if it was allowed. Since most of our market is based on trust, I believe that a vast majority of investors would pull out. As it is now people other than the insider traders already take big hits, why would we want this to increase? On a side note, I think that if we truly want to eliminate insider trading, we have to deal harshly with each case that is found. Since it is near impossible to completely regulate all inside information, I think a huge factor to dissuade people from doing it is fear.
Fear that they will be the next caught and suffer such harsh penalties. Of course being educated to the negative aspects of insider trading I would hope they would not participate in it, but greed is almost always greater. Although insider trading might accelerate the efficiency of the market, it is unfair to the other investors.
Therefore the rest of the class is at a disadvantage because they might have studied more and gotten a better grade if they knew. Whether you believe insider trading is right or wrong, it is illegal. It is unfathomable to me that people still continue to make huge trades on insider information when they know the consequences. Is a 3 million dollar gain worth potential jail time? People who go through the trouble of creating several fake accounts or covering their paper trail clearly know they are breaking the law.
I believe that these individuals should face the consequences of their blatantly unjust actions. I agree that the problem with insider trading is the lack of justice for all parties involved. Many benefit, but many innocent parties also suffer. Also, in your article, you mention that companies often hire experts as consultants. How would you give your opinion and answer the inquiries of these banks without leaking insider information?
Someone with this job must face ethical dilemmas every day. I hope that they are making decisions based on strong ethical principles and not to please their clients. From my view as an average person without inside information, I would be upset too if someone from a company worked the system, kind of like Sokol, and made millions after I had just trade out.
I figure the main point is that it is illegal and unfair in general. I hope the authorities do round up more people who are taking advantage of the free market. I think seeing other people go to court for insider trading will hopefully be a deterant for others.
Insider trading is a way for a person and most likely another individual party to get a heads up on what others do not know about. Taking advantage of a company by doing insider trading is extremely unethical and hurts the company. I think that insider trading is such an easy act to commit that people are coming out of the woodwork now that have been trading on non-public information for years.
It seems that there should be stronger controls in place to prevent insider trading although I have no clue what they could be. Until then, I think that it will continue to surprise the public what has been going on involving insider trading. Even the most reputable firms such as Berkshire Hathaway have committed the act which proves that everyone is capable of this crime. Hopefully the SEC will find a way to crack down on insider trading in the future because it is clearly a big issue right now.
I tend to disagree that any party is harmed from insider trading. For example, if the CEO of a company is aware that his company is about to miss their consensus EPS and sells his shares as a result, the price may decline if he is selling a large chunk of shares.
However, in a liquid market these two parties are not negotiating with each other individually to determine a fair price for the stock transaction. The investor made his decision to purchase the shares based on his own research and opinions. He would purchase the shares regardless of whether the CEO decides to sell. Based on this reasoning, I believe that insider trading is a victimless crime.
Nonetheless, it should still be outlawed based on a desire to have a marketplace defined by equality of opportunity. The market should be as transparent as possible, with everybody having equal access to that information. Investors can then analyze the same set of facts and come to various investment conclusions. If someone is privy to information that is not available to the rest of the marketplace, they should be excluded from trading in that market until the rest of the market is made aware of it.
Insider trading is wrong based on a desire to achieve equality of opportunity. There are reasons why we, as auditors, are not allowed to trade with companies our firm does work for.
We simply have too much information at our disposal and too many ways to make that information profitable through client connections.
In my opinion, there is definitely a fairness issue within the insider trading realms. This is one area I feel our profession has definitely put a stop too with a matter of independence.
The same should go for our clients. When I first started trading in the market, I was in way over my head, but my parents felt it was best to let me learn myself. So needless to say I lost about everything I put in because I went with the companies I heard on the news which was normally never for a good reason. If I had the access to the insider information at that age, I would not be working to pay for college probably. This is the fairness issue coming in a small dose, but what about those who invest millions and lose everything?
The argument here about whether or not insider trading is fair is a moot point. The thought of people being able to get out of a losing situation or buy into a good situation on information that is not yet available to the general public is extremely unfair. Overall market efficiency should be sacrificed to an extent when dealing with this. Otherwise you will continually see things like what happened at Enron continue to occur. People will lose millions because they were unable to trade on information that others were able to trade on until it was too late.
Ethical egoists like Raj Rajaratnam will continually try to justify why they did this, but the fact of the matter is they have no moral compass pointing them in the right direction. They know it is illegal and unfair to other investors and still feel like they can get away with it without any sort of punishment.
I do not think that market efficiency should be an accepted excuse for the people trading on inside information. This might be a side effect of their actions, but it is definitely not the intended purpose. This market efficiency excuse seems to be more of a utilitarian argument; however, I believe most insider traders are ethical egoists.
They feel that they ought to be able to use the information that they have worked so hard to be in the position to get. They feel as if this information and the money stemming from it are owed to them.
I find this incredibly hard to believe. They might have worked their way to the top, but they are being more than fairly compensated for being there. I find the tone set from the top at this specific firm fascinating. Employees are encouraged to use whatever means they have to make money for the firm, even if it means cheating their own customers. It seems that this tone of greed and deception is becoming generally accepted. Until this problem is solved, I think there will continue to be major headlines each week about new insider trading scandals.
People are quick to condemn concepts that seem to put the vast majority at a disadvantage, and I agree. We should seek to promote the overall good. But I think we tend to forget that there are two sides to insider trading. Not only can losses arise from the act, but gains are just as likely.
Would we be so quick to put down insider trading if most of the shareholders were to reap great benefits in the form of gains? But when we are winning, that cry soon dwindles into a faint whisper of uncertainty. I think there is a deeper and more basic argument that can be made against insider trading.
However, I do believe that stealing or being an accessory to the fact is wrong. Trading on inside information is usually trading on stolen information. The information is nonpublic and rightfully belongs to the company. In my opinion, in order for a market to be operating efficiently, it needs to be built on trust.
However, the problem is holding everyone accountable to this trust. By trading on information that is not available to the public, you are giving up the right of others to a fair trade. It is like taking a test, and having all of the answers to the test. While others are forced to study and do their research, you are left with an unfair advantage. Lastly, people continue to use insider information, despite intense enforcement of the laws, because the temptation to make a quick profit is so great.
I think it is quite sad to see people so driven by money and greed that they take on the potential risks of getting caught in order to make a few bucks. Not sure the cost benefit analysis would work out favorably, but it seems it would add a little incentive to do the right thing.
Is there a gray area or is it all just black and white? I am reminded of the definition of justice we learned in class that people vary on what they see as a just distribution.
In America today, people could say insider trading on some levels is just because the stocks should be distributed to each person according to merit or who has earned them. That is one of the reasons why I have decided to not go into a profession in corporate America because I know I would get eaten alive!
It is really shocking to see so many insider trading cases going on. I guess their main concern is losing money and a decreased stock price but honesty and transparency has to start somewhere if they world of business is ever going to improve and become a more ethical environment.
When reading this blog, I think we have to ask ourselves what is more important. To be honest and not steal OR to make a couple bucks off trading stocks? What gets me is that most of the people that engage in insider trading seem to be rich as it is…why do they always need more?
There are people out there that will lie, cheat, steal, and even kill because of money. And what about the illegal aspect of insider trading…does greed make a person feel as if they are above the law? Hopefully, the consequence of having freedom taken away will become apparent to those engaging in insider trading and will deter it from happening.
But then again, is greed stronger than the gift of freedom? Can we really put a price on freedom? Apparently, money has blinded some people, which is unfortunate. When it comes down to it, we know what is right. Insider trading is wrong. Sokol is not being criminally charged. It seems fairly obvious that he committed insider trading, he even resigned over it, why does the government not try to go after him?
It is things like this that make non-business people wary of Wall Street. A major person can commit a blatant felony and not be punished. Shaub, It is always interesting to see another point of view on these matters. You make a good point about who this is really hurting—the average investor. This is something that the inside trader, as a typical ethical egoist, would not consider.
I think that the hardest part of keeping up with the insider trading and similar scandals is seeing how much money some of these people are able to walk away with. As the rich keep getting richer, I have no doubt that insider trading will be a continual problem in the future business environment. It is up to each individual to determine what they will do when privy to inside information.
I agree that insider trading is wrong because it gives people who are in a position to use information not known to the public to make a little more money for themselves.
I think this relates to what Dr. Smith discussed the other day. He said we must choose integrity as our goal and not other things like wealth, popularity, or fame. This is very true for insider trading. We must choose integrity and not use information that we are trusted with for our own benefit, this means that we have put wealth above integrity. Finally, I agree that insider trading is a moral issue, and is a fine line.
We must respect confidential information to protect the fairness of the market. Like everyone else, I feel that insider trading is morally wrong and those who are able to justify it are ethical egoists, not people who we should set our ethical standards by. As most of us will start of our careers in public accounting, insider trading is a real issue that we will all face.
We will know confidential information that if used or shared will be a violation of insider trading laws. We all know that insider trading is wrong, but as we have seen through the many lectures on Enron and Martha Stewart, it is easy to fall down a slippery slope and make justifications that can lead to time in prison. While market efficiency is always to be sought after, insider trading is not the way to do it.
We can only hope that people will learn from the mistakes of others and choose to be ethical when they are privy to such insider information.
There are always going to be those people who try to push the boundaries, many of whom will go unpunished. If they value consequentialist calculation, perhaps the punishment is not enough to outweigh the reward. If the government was to take a harder stand and increase the scope of investigation for potential acts of insider trading then it would occur less. The appeal to me personally is one of duties.
I know that as an accountant it is my duty to protect the general public interest. When people trade on insider information they most always undermine the casual investor by using information only they have privy to and to me that is something that I could not do and live with. There is no question this is material and is obvious relevant to the average user. If the market knew Berkshire was interested in Lubrizol the stock price definitely would have increased.
Unfortunately, listening to Paul Atkins, former SEC commissioner, it is unlikely they can prove insider trading. There also is a morality issue when it comes to insider trading.
There is no level playing field at all when someone has an illegal boost forward. Unfortunately, even after the Rajaratnam trial, there will definitely be more insider trading cases, because greed will never die. I equate insider trading with stealing because the trader is making a profit on information unknown to the public. The ethical egoists will accept this action more often than utilitarians. On the other hand, many people choose not to engage in insider trading because they would not want someone else to steal their returns, so it is not right for them to take unfair returns.
Insider trading is an issue that we will encounter as auditors, and we must always choose our integrity over the potential returns.
This post gave me a different perspective on insider trading. It is easy to pinpoint the victim of crimes like assault and theft, and to assess their damages, but to me those people that are affected by insider trading seem like an ambiguous group without an unclear amount of damages to claim.
But Dr. After reading some of the previous posts, I read some people saying that they did not realize the harm insider trading provides to the people who are cheated. I mean the reason that insider trading is illegal is because of the victims that it claims. The unfair advantage over the opponent is what drives the illegality. However, when an action causes harm to others, that is when are regulators usually step in and attempt to prevent any wrongdoing.
Like we have studied in class, the laws are usually too late and were brought on by past events that caused people harm. So when you say you have never thought about the victims I find it hard to believe, because the basis of laws on insider trading are the victims it claims. Market efficiency, like the forces of competition, does not have to be absolute for generally favorable outcomes to occur.
Every company states that is against their code of conduct, as does every person who knows what insider trading is. It is also illegal. So, why is it still big enough that we are discussing it?
Consider this idea. Most people that get arrested for insider trading do so because they perceive the likelihood of being caught and prosecuted is so low. Many insiders trade for relatively small amounts compared to their real fortunes — Rajaratnam is a billionaire. If you want to eradicate insider trading, make the penalties so great that the expected value of penalties makes even the tiny chance of being caught enough to stop insider trading.
He is worth many multiples of what he earned on the Lubrizol transaction. However, everything I have ever heard him say or do tells me that he is an honest man who did not see anything wrong in what he was doing. So why does this example, which we find hard to pin down as being insider trading, still continue to steal headlines and gall us? When stocks are going up, people are not interested in insider trading scandals.
When we are feeling financial pain, we like to see financial criminals in prison. So we find a way to penalize someone who did something wrong in connection with something financial. Who caused more financial pain, Angelo Mozilo or Raj Rajaratnam? Jimmy Cayne or Martha Stewart? Chuck Prince or Bernie Madoff? Joe Cassano or Ivan Boesky? Yet the first individuals of each pair will face no jail time, and only Mozilo has paid some civil penalty.
You know what happened to the second set of individuals. The real ethical problem is how we have set up a system that paints insider trading as so much worse than criminally negligent judgment that nearly destroys capitalism, time and time again. Is there some overlap? Of course. You know why Mozilo, who was chairman of Countrywide and lost tens of billions of dollars, was charged?
Insider trading. So what seems more unethical to you? Insider trading, or a system that rewards executives for blowing up? I have found the topic of insider trading very interesting, both what has been discussed in class and this blog post. Prior to this class, I understood insider trading, but honestly did no really care that is was happening. My believes were most likely because I had never been effected by insider trading, or I had not worked in a business setting where I saw the importance of the stock value.
Recently my opinion has changed. Yes, insider trading makes the market move at a more efficient pace, but the people who are causing the change are stealing from the other investors.
Today in ethics coffee, we discussed insider trading and its future effects on regulations through the Raj case. Because of the inside information gained and used for gain by investors such as Raj Rajaratnam, our government will most likely increase the regulations on the economy. I am very interested in the outcome of the case and how it will affect us in our future jobs.
0コメント