The stock market, just like any other business, is a business that every investor gets into to make a profit. Every person invests their hard-earned money believing that the money will earn interest after some time. For the market to be free and fair, everyone should know what they need to know. Knowing something the other parties do not know to their advantage; then the business becomes fraudulent and illegal.
Such dealings are called insider trading. It is an unlawful practice where people trade to their advantage after accessing confidential information. Such practices have led to scandals in the stock exchange market.
Insider trading scandals in the news
1. The Wall Street Journal Scandal
At the time of the scandal, Foster Winnas was a columnist at the wall street journal. He shared vital information with two stockbrokers about an article he was to publish in the journal. On knowing what Foster was to write, the two brokers used the information to their advantage in the market and made $690,000. They later tipped off Foster with an amount of $31,000. Such a business is illegal. It is considered a conspiracy to use what you know against people who do not understand what’s happening. Foster, alongside the two brokers, was convicted for insider trading.
2. Enron Scandal With Jeffrey Skilling
Jeffrey Skilling, for a long time, was the president of Enron where he used confidential information in the stock trade and made himself a fortune. In 2006, he was convicted for having done 19 crimes, insider trading being top of the list. The court found Jeffrey guilty and fines him $45 million. The case was later reviewed, and Jeffrey reduced his sentence by ten years after a sum of $40 million was seized to minimize damages on people involved in the Enron collapse.
3. The SAC Group Case
With Steven A. Cohen at the lead of the company, SAC Group was one of the most performing hedge funds throughout the country and worldwide. That was until the company was found guilty of allowing its clients and partners to participate in inside trading. Matthew Martoma and Michael Steinberg were some of the top traders convicted due to illegal practices. The SAC group had to pay a hefty fine amounting to $1.8 billion to allow unlawful practices under their watch.
4. The Galleon Group With Raj Rajaratnam
The Galleon group headed by Raj Rajaratnam was one of the most famous and well-doing hedge funds in the world. That changed when Raj, the CEO, was arrested after conspiring to practice insider trading. News had it that the deal would make Raj and the company $20 million richer. After a court hearing, Raj was found guilty on 14 counts and jailed. His accomplices, including the Galleon group manager and the former Goldman Sachs manager, were also convicted of giving Raj tips on insider trading.
5. The Golf Buddies Case
Have you ever found yourself in some deep mess due to things you said without giving much thought to them? After a long day, we tend to talk about how the day at work was and what ought to happen. That is what Scott London would share with a fellow golfer not knowing that Shaw was making hundreds of thousands out of the small talks. The mistake landed Scott in jail for 14 months and had to pay a fine to the government amounting to $100,000. Shaw later pleaded guilty and was convicted of insider trading.
There is no way and no time soon will insider trading be legal for the following reasons:
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It gives the insider a competitive advantage higher than all the other trades
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It provides the insider with the ability to control the stocks’ value so that they make a better interest
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Insider trading lowers the fiduciary duty of the insider towards their clients and focus on benefiting themselves
If you are a beginner investor in the market, you should be very careful of insider trading to not get into the wrong side of the law. Understand the insider trading reports to ensure that nothing goes wrong when trading.
