Insider Trading: A Historical Perspective
Insider trading, the act of buying or selling stocks based on non-public information, has been a subject of controversy for many years. This practice has been around since the early days of stock markets and is still prevalent in today’s financial world. In this article, we will explore the history of insider trading and its impact on society.
The earliest known case of insider trading dates back to 1792 when William Duer, a prominent New York City businessman and one of the founding members of the New York Stock Exchange (NYSE), engaged in insider trading. He used his position as Secretary Treasurer to obtain confidential information about government bonds before they were publicly offered for sale. Duer then used this information to buy up these bonds at a low price and sell them later at a higher price once they became public knowledge. His scheme eventually failed, leading him into bankruptcy.
In modern times, one notable example of insider trading was that involving Ivan Boesky, an American investor who made millions through illegal trades in the 1980s. Boesky had access to inside information from corporate executives and shared that information with other traders who profited from it as well. He was caught by federal investigators and sentenced to three years in prison.
Another infamous case involves Martha Stewart, an American television personality and businesswoman who was convicted in 2004 for lying about her involvement in insider trading. Stewart sold $230,000 worth of shares in ImClone Systems after receiving confidential information about its drug’s approval status from her broker.
While some argue that insider trading can be beneficial by allowing insiders such as corporate executives or board members to make informed decisions regarding their own company’s stock purchases or sales; others argue that it results in unfair advantages over ordinary investors which goes against ethical standards resulting in market manipulation.
Regulations have been put into place over time globally to prevent Insider Trading including The Securities Exchange Act (1934), The Financial Services and Markets Act (2000), and the Securities and Futures Ordinance (2002) in Hong Kong, among others. However, it still occurs despite these efforts.
In conclusion, insider trading has been a part of financial markets since their inception. While some argue that it can lead to more efficient markets as insiders make informed decisions based on non-public information; others point out that it creates an unfair playing field for ordinary investors which goes against ethical standards resulting in market manipulation. As such, regulations have been put into place globally to prevent this practice but unfortunately they have not completely eradicated the problem yet. It remains to be seen if there will ever be a solution that satisfies all stakeholders involved in this complex issue.