Insider Trading

Insider Trading has been a problem in the U.S. for many years now. Many wealthy individuals use insiders trading, and take advantage of this system to increase their earnings substantially. It is a complex topic which needs to be thoroughly explained because of the ease of which it could accure without you even thinking about it.

Now what is insider trading? It is the use of non-public information to sell/buy securities. This is a problem because of the "tough" situations people can get into without even understanding/realizing that they have just done something illegal. If you somehow acquire inside information about a company, that is considered insider trading, many people that participate in stocks do not know that and get punished. But most cases out there, the individual knew that it is illegal and used the valuable information he had just acquired to profit or avoid a bad situation (loss of money). For example, if someone owns securities in a company and they get "tipped off," to the fact that the company is going out of business, that individual (using this information) will sell, sell, sell so he will not be lose money. This may be nice for the person who sold his share, but what about the one buying the securities? The buyer will be receiving them not knowing that they are about to loose a whole lot of money days after making the interaction, which is plain unfair and morally wrong.

Luckily we have many laws against insider trading, such as rule 10b5-1 which states that trades that are made based on non-public information is illegal and who ever uses it will be punished for their actions.

Illustration by Frits Ahlefeldt-Laurvig

Now there are some people who believe that inside trading should not be illegal for some reasons such as saying that it is a victimless crime, but I completely disagree. Insider trading does have victims, the people who purchase the stock from the individual with the inside knowledge about that trade. As I said before selling someone a stock that is bound to drop is just wrong, you are placing that individual in a sure situation where he is going to loose money, throwing him into a ditch he may not be able to climb out of. Lets put this in a different prospective, would you trade flights with someone, knowing that the plane you are sending him on is going to crash? Although a common argument would be the "its better him then me", which at some situations may apply but it is just something that should not be done.

Insider trading seems to be the one way to "cheat" the whole stock owning business. The rules holding people back from doing these kind of things legally have a huge affect on society because of the simple fact that it saves people from hurting their economic status. If insider trading would have been legal society would have fallen apart. The world I picture (without insider trading) is one where anyone with enough brains and contacts in the business industry could get rich very easily and quickly, or even place innocent people in situations they cannot get out of. Insider trading actually stirred controversy when people realized that it was (sort of) legal for members of congress to use insider trading. Experts believed that due to their knowledge about companies, having insider trading be legal for members of congress would be absurd, earning them money easily without the need to work for it. This is just another example of the moral wrongs of insider trading. The impact that these rules have on society is huge, protecting people from loosing their money and preventing those who break the law from achieving the desired benefit. They hold the stock business in place and make sure that no "undesired consequences" will rise out of the actions on those who decide to go against public belief and break the law, and having these laws there to protect the innocent have and will always have an impact on society today as we see it.