By Xiqian Chen & Jianing Lu
In recent news, Steve Cohen of SAC Capital Advisors have
agreed to plead guilty to insider trading. Although he claims he himself has
not done anything wrong, he is convicted by the SEC of failing to supervise his
employees. For many years the SEC has been tracking SAC Capital Advisors since
many ex-employees have been convicted of insider trading.
Actually over the last three years, the SEC has filed more
insider trading actions (168 total) than in any three-year period in the
agency's history with illicit profits or losses avoided totaling approximately
$600 million.
What is insider trading? It is the trading of public stocks
by individuals who has access to non-public information about the company.
There are legal and illegal insider trading. The only legal action is that
insiders trade their company’s shares inside their company and report to
SEC about the trade. Others are illegal.
Why is it important? Because the holder of the private
information can either sell or buy a stock first and so his risks is less than
the average and his return will be greater than the average stockholder, which
is unfair and so under law it is illegal.
Although The Securities Exchange Act of 1934 was Act that
made insider trading illegal after the stock market crash of 1929, Congress who
passed the law didn't seem to think this applied to themselves. In 2012, 60
Minutes did a expose on Congress's inside trading. In response to this
embarrassment, Congress passed the STOCK Act in April 2012, which required
28,000 government employees to disclose their financial transactions to the
public via a online database, which could be easily accessed with a
login.
In April 2013, Obama signed a reversal of a key provision of
the STOCK Act. Instead of 28,000 employees now only about 67 executive
officials need to disclose their financial transaction but of these 67
executive officials, majority of them by law are not allowed to participate in
stock market anyways. Not only the targeted persons have been decreased by a
large percentage, Congress has also made it harder for financial transactions
to be retrieved by taking it down from the online database. This reversal
provision was passed by the house and senate in less than 30 seconds with
unanimous consent. Although it was a unanimous consent, a large number of
officials were not even aware that they gave a consent since they were not
present at the time. And so although inside trading is illegal to the
public/private sector, the Congress still has its way around it.
http://dealbook.nytimes.com/2013/11/03/sac-nears-an-insider-trading-guilty-plea-but-legal-cases-arent-shut/
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