Legal insider trading: base for corporate fraud?

It is believe the term legal insider trading should be added to the other oxymoron terminologies. There is a fine line between insider trading and what is considered legal insider trading. That fine line can wreak havoc and end up with jail terms for those that are participating.

Insider trading is defined as the trading of corporate stocks or other securities based on the exchange of information that is not public knowledge. Historically, this type of trading has been accomplished on golf courses and during business dinners. This is a quid pro quo kind of a thing that businessmen exchanged as part of their network process. While it was considered illegal, most simply turned their eyes away due to the mass practices. Unfortunately, when a woman entered the playing field, it became a method to set an example and shake up the private world of insider trading.

Legal insider trading is a method for corporate insiders such as executives, directors and large shareholders accomplishing a trade based on potential internal knowledge of the general health or condition of the corporation. While the trade cannot be based on material non-public data, it is required to be reported to the Securities and Exchange Commission within a few days of the occurrence. In light of the downgrade of our economy, the general public became outraged as participants in this grey area not only got away with their deed, but continued to receive high bonuses and commissions. In a time when families have lost jobs and homes, it was hard to believe that such blatant corporate fraud could go unpunished.

In the world of business, legal insider trading happens between many participants. It can be a stock holder??™s attorney, accountant and business associates. These are termed as secondary players or actors. As we look to the news and reporting of the antics of such companies as Enron, and individuals like Madoff, we realize that it??™s time to move legislation in place that will not allow the grey areas of legal insider trading to exist.

Insider trading of all sorts is believed to increase costs and decrease overall economic growth. So why does legal insider trading still exist? There are those in the government that want to address this question and have created Senate Bill 1551 which is an amendment to SEC Act of 1934 as is called the Liability for Aiding and Abetting Securities Violation Act of 2009. In a nutshell, it allows private civil action against anyone who knowingly or recklessly provides information to another person or persons in violation of the title. In essence, it gives us the right to pursue a lawsuit against any time of legal insider trading.

Will legislation of this type completely stop insider trading? Probably not. There will always be those that will try to find another loop hole or figure out a way to share information. It??™s part of our current culture of greed. It may, however, make some executives think twice about it. No one wants to envision themselves in a jail cell.

The information supplied in this article is not to be considered as medical advice and is for educational purposes only.