Business Law #7: Responses Assignment | Buy assignments online
Peer Response Assignment: DUE April 18th at 23:00 EST military time!!!
Interaction is defined as your contributions to the ongoing “conversations” in the Forums. You are expected to provide additional insights, explore differing opinions and present soundly supported, well reasoned comments that build upon ideas presented by others in the class. Your interaction grade is evaluated more on the substance of your comments, than on the quantity of your postings. Use the following as guidelines of Interaction expectations.
- The contributions develop the ideas further and even bring in new research to further develop the topic. Do not waste time by simply agreeing with or repeating another posting.
- These responses should be AT LEAST 200words each in length (NOT counting references), supported by at least ONE reference outside of the textbook,
- Select a fellow student’s response and compare and contrast your thoughts with theirs.
- Advance the conversation; provide a real-world application and experiential examples.
- Conceptually discuss your key [most significant] learning insight or take-away from the selected forum topic comments.
- The postings are to be respectful and supportive in tone.
- More than anything else, I want to see that you are THINKING about the material as a whole. In that regard, please know that every time I read the words “Great post!” or “I really enjoyed reading your post this week!” or anything similar, I cringe. Think critically about your fellow classmate’s responses; if you see something that sparks your curiosity, explain why and/or pose a question.
Student Response: CHOOSE TWO among the 4 responses to respond to!!!!
Response #1
Insider trading is when a person makes decisions involving equity trading based on knowledge of non-public or “inside” information. Insider trading is considered a crime because not everyone has access to this information and the actions of that one person could not only affect the stock but also provides the person who took the action based on the nonpublic information to be able to benefit vastly. To put in plain language, they have been given the opportunity to be unfair in the marketplace of equity trading.
In today’s social and economic market, some people are pushing for the legalization of insider trading. In the article complied by Bandow, he included both sides of the argument of legalizing insider trading. However, he argued that with the changing times and difficulty to regulate, that insider trading should be legal. He also includes the point to which acting on information typically results in a purchase of stock that is already for sale and it the seller would have sold to whomever purchased the stock, sellers don’t get to screen buyers on the level of investment knowledge or other information they may have before selling to them (Bandow, 2011). Another point he makes is that people tend to analyze data differently so insider information could essentially lead investors to make different decisions from one another on the same set of information (Bandow, 2011). Proponents of legalizing insider trading are stating that with insider trading would come more efficient markets in which to trade (Carney, 2017). In addition to that idea, they also conclude that there is likely insider trading going on that is not being prosecuted because it is very difficult to monitor(Bandow, 2011). Those that are still siding to keep insider trading illegal are noting what is does to the individual investors. On one hand, certain people may have an unfair advantage over another when they have insider information that they can trade on. On the other hand, the confidence and willingness to participate in the market without access to insider information could put a person at a detriment in the marketplace and make investing more risky than before(Carney, 2017).
When people are assuming more risk in this fashion and then lose confidence in the stock market, they will probably choose to put their money elsewhere. This information made me question that, if too many people were to take their money out of publicly traded funds, because the market is somewhat controlled by the insiders, could be another instance of a market collapse such as the Great Depression? My opinion on the whole concept of insider trading is that if legalizes, it would create more issues than benefits. A few of the reason that proponents have for legalizing this are not bad reasons but the potential harm it could cause seems as though it would greatly outweigh the good aspects. In its current illegal form, I think it is the most fair to all investors alike and will keep investor confidence at the forefront. This level playing field would benefit a greater population instead of the select few people’s personal, and at times, unreasonable gain.
References:
Bandow, D. (2011, January 20). It’s Time To Legalize Insider Trading. Forbes.
Carney, C. (2017, October 20). SHOULD INSIDER TRADING BE LEGAL?: A LOOK AT THE QUESTION AFTER SALMAN V. UNITED STATES. Columbia Business Law Review.
Response #2
Insider trading is the illegal practice of trading on the stock exchange to one’s own advantage through having access to confidential information.
it is illegal trade because it gives the insider an unfair advantage in the market and allows an insider to artificially influence the value of a company’s stocks.
from an article i read some time back, the writer argues that legalizing insider trading will ensure that stock prices do not pop without a predictable trend since information will be availed to the public.
i agree with his argument because one will need information to safeguard their investments regardless of the source of the information be it legal or illegal. this will also not create a fair platform that will not disadvantage the insiders.
Response #3
Insider trading is defined as using inside information to either cheat the corporation or take unfair advantage of corporate outsiders. Corporate insiders who report buying and selling stock in their own corporation to the SEC are acting legally. It is insiders who improperly use data that they have in their possession due to their position within the corporation to trade securities who are acting illegally. Outsiders such as family members, business partners, and friends who benefit from this otherwise confidential information are also liable for illegal insider trading (Sukys & Brown, 2017). In short, insider trading is illegal because of the unfair advantage that the insider possesses.
A recent article that addresses insider trading is “The Ethics of Insider Trading Reform” by John P. Anderson, a Mississippi College School of Law Professor. In summary, the author is in support of an exception to insider trading regulations in the form of issuer-licensed insider trading. This trading would permit firms (the issuers), at their discretion, to allow their employees (the insiders) to trade the firm’s shares based on material nonpublic information. The issuers would be required to provide a general disclosure to their shareholders that they allow such trades when it is in the interest of the firm and to separately disclose all trading profits resulting from approved insider trades (Anderson, 2018).
Anderson makes three main points to combat what he foresees as potential objections:
- By retaining the power to approve or reject proposed trades, the issuer itself controls the risks.
- Issuer-licensed trading does not deceive or violate a promise to the firm because the firm itself has allowed the trade. And there is no deception of others who trade in the firm’s shares because the issuer has disclosed that it allows its employees to trade based on material nonpublic information and has disclosed any profits earned by such trading.
- Even if it could be proved that a trader was motivated by the vice of greed, greed alone is not a valid justification for imposing criminal sanctions because such trades would be harmless to others.
Whether I agree with Anderson or not depends on the application. Do I think that this may work? Yes. Do I think the concept would be met with an uproar if proposed to a well-established company’s shareholders who didn’t purchase their shares under this agreement? Absolutely. I also think that it would be incredibly difficult to regulate. For example, an employee wouldn’t be held to traditional insider trading compliance standards for personal use of the issuer’s nonpublic data, the temptation to share this information with an outsider who may also benefit may present itself as an ongoing issue. I also think it’s an interesting concept and that it should be at the company’s discretion if going public.
References:
Anderson, J.P. (2018, March 20). The Ethics of Insider Trading Reform. Retrieved from: https://www.mercatus.org/publications/ethics-insider-trading-reform
Sukys, P. A., & Brown, G. W. (2017). Business Law with UCC Applications (14th ed.). New York, NY: McGraw-Hill Education.
Response #4
Martha Steward was found guilty in 2004, for conspiracy, obstruction, and lying to federal investigators about why she sold her ImClone stock in December 2001 just before the stock tanked (Thompson & Press, 2004). She went to prison for trying to coverup a crime and not the crime itself.
What is insider trading, and why is it a crime?
Insider trading is an action of security fraud. It is when someone within a company has access to inside information that is not yet public and they use it to “cheat the corporation or take unfair advantage of corporate outsiders” (Sukys & Brown, 2017).
Insider trading is only a crime when insiders or de-facto insiders use “nonpublic, factual data that they have in their possession” because of their company role “to trade securities in violation of the fiduciary duties they owe to the corporation and its shareholders…” (Sukys & Brown, 2017).
Insider trading is prohibited by the Security Exchange Act 1934 (Sukys & Brown, 2017). However, a corporate person can buy and sell stock in their own corporation legally if the information is public, but they must report the transaction to the SEC.
Some have argued recently that insider trading should be legalized. Find and summarize a recent article that addresses this issue. Do you agree with the author’s position? Why or why not?
After reading the article Legal insider trading? This is what it is and how it affects investor, by David Tang, I agree that it is NOT in the best interests of the corporation or corporation outsiders to have insider trading fully legalize. “American Studies find that insider trades can predict future stock returns and earnings” (Tang, 2017). That is like everyone knowing what the Powerball Lottery numbers are going to be every week. Though legal insider training could make stock prices more “informative which furthers leads to lower cost of capital and high firm value,” it could also lead to “tighter inside trading restrictions leading which could adversely affect the firms market value” (Tang, 2017).
This concept reminds me of the discussion we had previously about there either being a solution or tradeoff. If insider trading became legalized there would surely be a huge tradeoff, to the firms, its corporate outsiders, as well as the economy as a whole.
References
Sukys, P. A., & Brown, G. W. (2017). Business Law with UCC Applications (14th ed.). New York: McGraw-Hill Education.
Tang, D. (2017, April 12). Legal insider trading? This is what it is and how it affects investors. Retrieved from TheHill.com: https://thehill.com/blogs/pundits-blog/finance/328535-legal-insider-trading-this-is-what-it-is-and-how-it-affects
Thompson, A., & Press, A. (2004, October 8). Stewart Begins Serving Jail Term. Retrieved from NBCNews.com: http://www.nbcnews.com/id/6205192/ns/business-corporate_scandals/t/stewart-begins-serving-jail-term/#.XLTxBehKhPY
Original Discussion Forum Prompt: (DO NOT RESPOND TO THIS!!)
Several years ago, cooking magnate Martha Stewart spent time in prison for crimes related to alleged insider trading. What is insider trading, and why is it a crime? Some have argued recently that insider trading should be legalized. Find and summarize a recent article that addresses this issue. Do you agree with the author’s position? Why or why not?
Respose to Prompt:
Insider Trading
Insider trading is the practice of buying or selling the stock of a publicly-traded company while in possession of material information that is not yet on public domain (Beny, 2006). Primarily, material information is any and all information that can lead to a substantial impact on an investor’s decision on whether or not to buy or sell the stock. Information is deemed as non-public information if such information is not legally out in the public domain and only a few people who are directly related to the information possess that information (Beny, 2006). An example of an insider is a director of a corporation or a person in a senior government position who can access an important economic report before the report is released to the public. However, there are detailed rules that cover insider trading and these rules vary from one country to another.
Insider trading is considered a crime because a person who has access to insider information would have an added advantage over other investors, who do not have such access and could easily make larger profits than the other investors or a typical investor. For example, a corporate executive is considered to be engaged in illegal insider trading when he/she tips others when he/she has any sort of nonpublic information. However, there are some aspects of insider trading which are considered legal. For example, legal insider trading occurs when corporate executives purchase or sell securities, but they disclose their transactions legally (Beny, 2006). Insider trading has been considered a crime for several years now, but there are growing debates that argue how insider trading impacts market efficiency and if it has any negative effects in the long run. In this regard, some have recently argued that insider trading should be legalized. In her article “It’s time to legalize insider trading”, Carol Roth argues that insider trading should be legalized because it is a crime with no victims. The author claims that insider trading should not be criminalized because there cannot be a crime without a victim (Carol, 2014). She adds that information efficiency brought by insider trading benefits the average investor. She opines that “while a perfectly efficient market will never be achieved, getting information to the market as quickly as possible helps to alleviate asymmetry and allow information to reach a maximum of participants as quickly as possible” (Carol, 2014). Additionally, the author holds that insider information does not guarantee outcomes. She argues that insider information cannot be helpful to an investor if the information is not accompanied by some other critical pieces of information that would trigger other market participants to react.
Personally, I agree with the author’s position because insider trading promotes market efficiency. Insider trading gives a level playing field for investors as it allows them to get market information faster. Besides, by legalizing insider trading, it will attract talented management and industry experts to work for corporations. It is also worth noting that there will always be winners and losers in the marketplace, in the long run, when new developments take place.
References
Beny, L. N. (2006). Insider trading laws and stock markets around the world: An empirical contribution to the theoretical law and economics debate. J. Corp. L., 32, 237.
Carol R. (2014, June). CNBC, The Entrepreneur Equation. Retrieved on April 17, 2019 fromhttps://www.cnbc.com/2014/06/17/its-time-to-legalize-insider-tradingwall- streetcommentary.html
