Illegal Insider Trading - an Unfair Practice

“Illegal Insider Trading, An Unfair Practice”

Barry Bonds has been in the national spotlight for quite some time now fielding questions regarding his possible use of Performance Enhancing Drugs. However, while everyone is worried and occupied about whether his accomplishments are legitimate or not, millions of dollars are stolen annually in the form of insider trading, yet the public does not seem to take notice Be it the popularity of professional sports or the lack of education the public has regarding the financial industry, this crime of insider trading is widely ignored while sporting events are magnified daily.

Insider trading can be legal. For example, a corporate office buying and selling stock in his own company is legal insider trading, as long as it is reported to the Securities Exchange Commision (SEC). “Illegal insider trading refers generally to buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, nonpublic information about the security( SEC site). Trading on confidential information from within the organization one works to tips given from associates of other firms and companies to buy and sell stock is the most obvious form of insider trading.

The term “unfair practice” comes to mind when people think of Barry Bonds using Performance Enhancing Drugs because he has an advantage others do not. The same goes for illegal insider trading. Receiving information that is not available to the rest of the public and using it to your advantage is just as “unfair” as Bonds with steroids. Call it Performance Enhancing Information if you will, because your performance in the market will certainly be enhanced.

There are hundreds of cases to discuss regarding illegal insider trading; this practice has been around since the stock market has existed. One such case that caught my eye was an Ex-Goldman Sachs associate in the fixed income division who led an insider trading ring which netted $6.7 million (website). The defendant, who plead guilty to eight counts of conspiracy and securities fraud charges, faces up to 165 years in prison. A little more severe than anything Bonds will be facing if convicted.

This was a plan that was carefully planned out. The defendant used two sources of information. Advanced copies of BusinessWeek via a planted mole, and confidential information regarding major mergers supplied by a Merrill Lynch & Co. analyst. The names of relatives and an exotic dancer were used to front their accounts in which they traded.

The SEC grew suspicious in 2005 when a 63-year-old in Croatia made several million dollars during the acquisition of Reebok by Adidas by making call options just before the deal was made. The SEC was forced to freeze more than $6 million in trading proceeds