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Insider trading is trading in shares or other securities by people that have access to confidential information. However, alongside illegal forms of insider trading, there are legal ones. The insiders are not only directors or people from management, but any person with a stake of ten percent or more in the company can also be an insider (Barone). However, insider trading often causes a breach of fiduciary trust in investor confidence and the securities market. Most of the time, two people are in cooperation and work together. When the person that is usually close to the companys CEO (relative or friend) reveals information that was not to become public, another person uses the information to trade. The reason people do it is a monetary benefit for both of them. These types of activity are difficult to track, and it is even harder to prove the persons crime. That is why many people continue to practice illegal insider trading. However, the possibility of being caught and judged can become a punishment that is not worth the money.
In December of 2001, Martha Stewart sold four thousand ImClone Systems shares, and their stock abruptly fell the next day. After a lengthy trial, she was found guilty and was sentenced to five months in prison and five months of home confinement, in addition to being fined thirty thousand dollars and given two-year probation (History). However, her companys stock price quadrupled during her imprisonment even though many predicted her financial empire breakdown. Reimers states that a business must successfully plan, control, and evaluate its activities, and if it does these activities well, it will survive, and if it does them very well, it will make a profit (2011, p. 3). Martha Steward was fairly punished by the law but built a company that was not destroyed by these events.
References
Barone, A. (2022). What investors can learn from insider trading. Investopedia. Web.
History. (2005). Marth Steward is released from prison. Web.
Reimers, J. L. (2011). Financial accounting: A business process approach (3rd ed). Pearson.
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