Insider Trading: What We Know and What We Don't Know
THE ETHICS OF ORGANIZATIONAL TRANSFORMATION: MERGERS, TAKEOVERS AND CORPORATE RESTRUCTURING, Quorum, 1988
13 Pages Posted: 23 May 2006
This article examines six topics in insider trading: (1) How significant is insider trading? (2) What are the profits earned by insider trading? (3) Why is insider trading of concern to the SEC and others? (4) How is insider trading related to the takeover of a company? (5) What are the major ethical arguments against insider trading and how valid are they? (6) Who is or is not harmed (or helped) by insider trading? I argue that the amount of insider trading is not significant compared to the total value of all trading. I argue that profits to insider trading can't be measured, but what we do know of them suggests they are trivial compared to, for example, bank fraud losses or consumer losses due to steel subsidies. Since Congress has traditionally been unconcerned with insider trading but the SEC has, I argue that the SEC's zeal benefits investment bankers and others. I argue that the takeover industry has incentives to maintain secrecy, and that the SEC and others have smeared takeovers by associating them with inside information. I argue that none of the ethical arguments against insider trading hold up under scrutiny. Finally, I argue that only in certain cases where information is owned and protected can one make a case for either theft or breaking a contract.
Keywords: insider trading, SEC, insider profits
JEL Classification: K22, G30, G38
Suggested Citation: Suggested Citation