I am sorry that we could not finish our great discussion about insider trading yesterday. But we can profit from this article in the WSJ today (link here).
Short summary: Federal prosecutors in New York, the FBI and the Securities and Exchange Commission are conducting a three-year investigation on insider-trading charges that could ensnare consultants, investment bankers, hedge-fund and mutual-fund traders and analysts across the nation. Nothing new. The SEC has been investigating leaks on takeover deals going back to at least 2007 amid an explosion of deals leading up to the financial crisis. Preet Bharara, the Manhattan U.S. Attorney, recently said insider trading is a "top criminal priority" for his office, adding: "Illegal insider trading is rampant and may even be on the rise." Apparently, multiple insider-trading rings has recently reaped illegal profits totaling tens of millions of dollars. One of the focus of the the investigations is the development of new ways to pass non-public information to traders through independent analysts and consultants who work for companies that provide "expert network" services to hedge funds and mutual funds. These companies set up meetings and calls with current and former managers from hundreds of companies for traders seeking an investing edge.
John Kinnucan, a principal at Broadband Research LLC in Portland, Ore., sent an email on Oct. 26 to roughly 20 hedge-fund and mutual-fund clients telling of a visit by the Federal Bureau of Investigation: "Today two fresh faced eager beavers from the FBI showed up unannounced (obviously) on my doorstep thoroughly convinced that my clients have been trading on copious inside information," the email said. "(They obviously have been recording my cell phone conversations for quite some time, with what motivation I have no idea.) We obviously beg to differ, so have therefore declined the young gentleman's gracious offer to wear a wire and therefore ensnare you in their devious web."
The email, which Mr. Kinnucan confirms writing, was addressed to traders such as hedge-fund firms SAC Capital Advisors LP and Citadel Asset Management, and mutual-fund firms Janus Capital Group, Wellington Management Co. and MFS Investment Management.
Another aspect of the probe is an examination of whether traders at a number of hedge funds and trading firms improperly gained nonpublic information about pending health-care, technology and other merger deals.
The SEC sent subpoenas last fall to more than 30 hedge funds and other investors. Some subpoenas were related to trading in Schering-Plough Corp. stock before its takeover by Merck & Co. in 2009. Schering-Plough stock rose 8% the trading day before the deal plan was announced and 14% the day of the announcement. Another important case is the MedImmune Inc.'s takeover by AstraZeneca Plc in 2007: MedImmune shares jumped 18% on Apr. 23, 2007, the day the deal was announced.
The question is, once again, about the wrongness of insider trading and whether it would be more efficient and good for the economy to legalize it, that is to decriminalize insider trading and allow each individual corporations to specify what sort of inside information can be traded on (the link to the WSJ article discussed in the clip we watched yesterday is here).
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ReplyDeleteInsider trading is in most ways, the theft of information. Information, especially in the market, is very valuably property. The taking of this property is theft, which is both unethical and inefficient. Theft erodes the trust and transparency necessary for the incentive to invest in the market. While insider trading does not push a stock in the wrong direction, it does cause certain traders to make more profits. This advantage does not change the way the stock should move, but rather allows a few to gain more profits. This makes insider trading not only theft of information, but also a form of cheating the free market. Both of these actions are unquestionably unethical.
ReplyDelete-Tom Dennis
I fully agree with Rose and TD's comments. I am a firm believer in letting the free markets dictate the economy. Insider trading would essentially uproot the system, create an unfair advantage for some companies/traders, and skew the natural form of competition. Furthermore, it adds a thick layer of secrecy, corruption, and distrust to an already tumultuous industry. A Utilitarian would certainly not advocate the legalization of insider trading, as it clearly does not produce the greatest amount of good for the greatest amount of people. Insider trading does not accord with virtue ethics or a deontological perspective either because we have a moral duty to be fair and honest, even in business affairs.
ReplyDelete-Claire Smith
James Murtha
ReplyDeleteLike everyone has said thus far I think that insider trading would create an unfair advantage to the traders that make it their business. This shifts control of the markets to the traders who will hoard the information from the public, taking away the fairness of the markets. This would take away much of the public's interest in the markets because it becomes an unfair game. Therefore, I don't see how this method would work for the better of society