The Internal View of Insider Trading

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The Internal View of Insider Trading

Introduction

According to Jody Maley, crime is a negative social occurrence, which is generally associated with the individuals belonging to lower social economic classes; who do not have adequate knowledge regarding the legal framework. However this perception is generally misconstrued, as the most crucial criminal activities often involve the educated and professional class, who commit financial frauds. This paradoxical scenario involves the stakeholders that are considered to be the ideal citizens in the social society, and have complete knowledge regarding the legal framework. It is the expert knowledge regarding the legal aspects which allows these individuals to find loopholes and take advantage of the system. In the context of the recent global financial economy several financial fraud related cases have emerged, involving high caliber individuals. Cases including Bernie Madoff, Martha Stewart and even the Enron situation can be taken to understand the significance of these criminal activities. Unlike the traditional low level crime activities, the majority of the financial frauds are involving astronomical sums of money, which have a collective impact on the shareholders or the society as a whole.

Discussion

Legal Ramifications & Controls

Insider trading is a form of securities fraud which occurs at the trading activities of the public company stocks. The relevant board of directors of certain corporations or the majority stock holders has the influential power to alter the value of the company stock. The market perception plays a vital role in the investment of a given company stock, and any form of insider trading among the majority stockholders, may lead to severe consequences for the mass stockholders. Before highlighting the legal framework against insider trading, it is important to view the market dynamics perspective (Chan et Al, 2012). The regulatory authorities may try to develop adequate safeguards against this form of criminal activity; however these entities cannot monitor the behaviors of all the relevant individuals. The act of insider trading is predominantly focused on the ethical and moral attributes of an individual, and the regulatory authorities cannot develop system to completely halt this form of high end financial fraud. Competition and free trade is a benchmark of the developed countries, and the primary reason for their relevant economic success.

The regulatory authorities in the economic industry only play a secondary role, where they ensure that a conducive competitive business environment is developed. The issue which occurs in the majority of the cases involving insider trading is that, it involves a high number of diverse stakeholders in the financial environment. The regulatory authorities cannot keep a strict control over all these relevant individuals, as they also have to encourage a free trade environment. Although stricter regulatory controls over the actions of the corporate entities in the business environment, would ensure that the criminal acts such as insider trading are diminished; there would be a drastic negative collateral damage to the entire free economy. The costs of introducing more stringent regulatory controls are greater than the adequate benefit ...