Insider trading is illegal

Insider trading is one of the most challenging ethical issues that marred the reputation of many small, medium and transnational companies around the world. Insider-trading is not considered as a crime in many countries around the world especially the developing countries. It usually occurs when corporate insiders that have access to the company’s critical information like large shareholders, officers, directors and key employees make illegal trading activities based on non-public information that will have a very strong impact on the corporation’s stock market value.

The United States has one of the toughest laws when it comes to insider trading and these laws were passed in 1934. Other countries also try to take some kind of action against illegal insider trading practices. The insider trading is divided into two, legal and illegal insider-trading. Legal insider trading is when the corporate insiders trade the company’s bonds, stocks and securities through information that was already available to the public prior to the time of the trading activity. Illegal insider trading’s definition is mentioned above.

However, there are pros and cons for the differentiation of insider-trading as legal and illegal. Many people are totally against the idea of insider trading as a whole and say, “it is totally illegal”. While others claim, “as long as the information is available to the public, it is legal; but if the information is not known to the public than, it is illegal”. Furthermore, the critical information that should be made public is whether the company is making huge gains in the stock market or suffering from financial difficulties that will adversely affect its stock market value. If the company’s stock is high than purchasing its shares is expensive, otherwise it is cheap.

Furthermore, Jeffrey Skilling, who is now a US inmate at Littleton prison in Colorado, used to be a very rich man. He had once a net worth of around $100 million where $67 million of his liquid asset came from an illegal insider-trading in Enron (the seventh largest company in the US) between 1998 and 2001. This man now earns $1 for washing dishes at the prison’s cafeteria. This exactly shows how insider-trading is extremely illegal and dangerous.

What mistake did he do? Jeffrey was involved in the largest insider-trading scandal in the American history. Mr.Skilling and his mentor keneth Lay committed a massive fraud against the shareholders. Twenty nine executives were also engaged in this illegal activity.  The CEO and the executives discovered that the company’s stock will experience a sharp fall in the near future. Due to this phenomenon, Enron will file for bankruptcy failure. With this knowledge and real information in mind, they sold all their shares to tenth of thousands of shareholders. After the company’s failure Jeffrey Skilling was sentenced to 24 years in prison.

In my own impression, Insider-trading is illegal. Anybody, who is a shareholder; whether he/she owns less than 10 percent of the company’s assets or more than that has the right to know any trading activity going on in the company. I believe that everything should be transparent and clear so that mutual trust can be maintained to a full extent. If dire financial straits start to trickle out then the CEO and the Executives should inform this to the share-holders. They are responsible for the company’s financial safety on-behalf of the shareholders. On the opposite, if the company’s stock is increasing and expanding; they should also announce this publicly and not keep this to themselves; by purchasing many shares; and then announcing later that the company’s stock market is improving to sell these shares at extremely expensive prices with the intention of creating huge wealth for themselves.


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