Insider trading, in which trades are made based on certain “inside” knowledge or information about a major corporate happening, is a crime – and one that cheats everyone. A Sept. 25 article in Investment News describes what happens when insider trading occurs and why the perpetrators involved should be punished to the fullest extent of the law.
“Every owner of shares manipulated by insider trading is a victim,” the article says. “In addition to direct investors, the victims of insider trading are the thousands, if not millions, of 401(k) plan participants, mutual fund shareholders and bank trust customers who received lower prices for their shares because a few cheaters had inside information.”
Several individuals accused of insider trading are gearing up to face their sentences. One of them is hedge-fund titan Raj Rajaratnam. Rajaratnam, co-founder of Galleon Group LLC, was convicted on May 14 of conducting the world’s biggest insider-trading scheme. His sentencing is set for Oct. 13. The government, hoping to send an loud and clear message that illegal insider trading will not be tolerated, is asking the judge in the case to sentence Rajaratnam to 20 to 24 years in jail.
Last week, the Securities and Exchange Commission (SEC) issued subpoenas to hedge funds and other financial firms as it investigates possible insider trading prior to the downgrading of the U.S. government’s credit rating by Standard & Poor’s.
Insider trading allows people like Rajaratnam to profit from non-public information. In making their profits, insider traders are slowly but surely undermining the faith and trust that investors place in the financial markets. And that harms all of us.