Another ethical issue of concern in insider trading is the question of unfair competition (Brenkert & Beauchamp, 2009). Insider trading involves individuals taking advantage of non-public information of a company to execute stock trading practices. According to its definition, the practice does not only involve corporation officials, employees, and large stakeholders but even third party members with access of such information. This has the implication that other investors with stocks on the corporation suffer the disadvantage of transacting their stocks and bonds long after insiders have made them.
Such is ethically wrong as it deprives investors of their right to equal opportunity in the stock exchange market. Insider trading has the ultimate potential of leading to the collapsing of an investment. Insider trading has witnessed the downfall of many strong public corporations in the United States. Good examples of this are the 2002 collapsing of Enron and WorldCom corporations due to irregular trading of their stocks in the securities exchange.
According available evidence linked with the collapsing of Enron and WorldCom corporations, it is quite evident that the companies engaged in financial scandals involving misrepresentation of their financial statements to influence their stand at the stock market. This misappropriation of information as is the case with insiders thus risks falling of organizations. In addition, insider trading is a source of liability to the parties involved. The principles of ethical business practices dictate for mitigation of liabilities by members of an organization.
On the other hand, the underlying laws of our nation seek to prosecute perpetuators of unethical practices in the investment world (Brenkert & Beauchamp, 2009). This is in purpose aimed at safeguarding capital investments and protecting investor confidence. In line with this, insider trading risk tarnishing the reputation of an organization as well as its employees. This ethical issue can be emphasized by the legal case costs and other liabilities that have been incurred by former top officials of the WorldCom and Enron Corporations. Laws governing insider trading
Insider trading practices can both be legal and illegal depending on the provisions of the existing laws in the American nation. According to the available laws, legal insider trading should be qualified through SEC fillings which serve to make the proceedings public. There are three legal provisions governing insider trading in America namely: 1) common law; 2) SEC regulations; and 3) US Supreme Court decisions. Insider trading conducted without disclosure in inside information to the SEC is legally regarded as fraud under the American common law.
The 1933 Securities Act prohibits fraud in the sale of securities under its provision in section 17 (Miller & Jentz, 2009). These provisions are further strengthened by the Securities Exchange Act of 1934. Under section 16(b) of this act, it is a crime for company officials, directors, employees, and stockholders owning more than 10% of the company shares to enjoy short-swing profits through transactions in the SEC within a period of six months (Miller & Jentz, 2009). In addition, fraud activities during securities trading are prohibited under section 10(b) of the Securities Exchange Act of 1934.
Such is ethically wrong as it deprives investors of their right to equal opportunity in the stock exchange market. Insider trading has the ultimate potential of leading to the collapsing of an investment. Insider trading has witnessed the downfall of many strong public corporations in the United States. Good examples of this are the 2002 collapsing of Enron and WorldCom corporations due to irregular trading of their stocks in the securities exchange.
According available evidence linked with the collapsing of Enron and WorldCom corporations, it is quite evident that the companies engaged in financial scandals involving misrepresentation of their financial statements to influence their stand at the stock market. This misappropriation of information as is the case with insiders thus risks falling of organizations. In addition, insider trading is a source of liability to the parties involved. The principles of ethical business practices dictate for mitigation of liabilities by members of an organization.
On the other hand, the underlying laws of our nation seek to prosecute perpetuators of unethical practices in the investment world (Brenkert & Beauchamp, 2009). This is in purpose aimed at safeguarding capital investments and protecting investor confidence. In line with this, insider trading risk tarnishing the reputation of an organization as well as its employees. This ethical issue can be emphasized by the legal case costs and other liabilities that have been incurred by former top officials of the WorldCom and Enron Corporations. Laws governing insider trading
Insider trading practices can both be legal and illegal depending on the provisions of the existing laws in the American nation. According to the available laws, legal insider trading should be qualified through SEC fillings which serve to make the proceedings public. There are three legal provisions governing insider trading in America namely: 1) common law; 2) SEC regulations; and 3) US Supreme Court decisions. Insider trading conducted without disclosure in inside information to the SEC is legally regarded as fraud under the American common law.
The 1933 Securities Act prohibits fraud in the sale of securities under its provision in section 17 (Miller & Jentz, 2009). These provisions are further strengthened by the Securities Exchange Act of 1934. Under section 16(b) of this act, it is a crime for company officials, directors, employees, and stockholders owning more than 10% of the company shares to enjoy short-swing profits through transactions in the SEC within a period of six months (Miller & Jentz, 2009). In addition, fraud activities during securities trading are prohibited under section 10(b) of the Securities Exchange Act of 1934.
Source: law aspect
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