This is unethical and what the corporate officer should steer the conversation in a different direction and if his friends insist on continuing to ask questions he should firmly, but politely tell them he is not allowed to discuss personal company information with them.

Likewise, an employee has a certain amount of fiduciary responsibility if he knows that there are fraudulent practices happening at the corporation. If the employee knows that there is insider trading or if he knows that the accounting practices the corporation is using are dishonest, then he has an obligation to report what he knows. Some employees, especially if they do not hold high positions within the corporation, may think it is okay to look the other way and not say anything. But, as we saw in the case of Enron, the misconduct of a few can be devastating for the entire corporation.

IV. NOTABLE INSIDER TRADING CASES

Martha Stewart

Most of us are somewhat familiar with Martha Stewart and the fact that she was sent to prison to serve time on charges of insider trading. However, many are still unsure of what exactly constitutes illegal insider trading. Some may think it is just sharing private information which is something that all of us do at some time or another in our daily lives. They make think, "What is the big deal?" But they think this because they are not fully aware of the consequences illegal insider trading can have on all investors.

Martha Stewart found out in 2001 from the CEO's assistant of ImClone that the FDA would not be approving its application for a cancer drug. It was suggested that she sell her shares of stock in this company because they were about to fall and she did. When this action was discovered, Stewart lied about it and was even discovered erasing the message that the assistant left for her telling her to sell her stock. She ended up paying a hefty fine more than three times the amount of what she avoided losing by selling her shares of stock in ImClone. But, Stewart was being prosecuted because she lied about knowing anything that would cause her to sell her stock right before the price fell.

There are some legal experts who feel that Stewart's attorney should shoulder some of the blame for allowing her to perjure herself. The evidence against her was clear that she in fact sold the stock after receiving the message and she also was seen by her assistant erasing the message. Her attorney knew this and should have advised her to come clean on what she did. If she had been advised in this manner, it is highly likely that she would have avoided prison time and would have only been fined.

Raj Rajaratnam

Rajaratnam will be forever known as the man who grew an $800 million hedge fund into an $8 billion one in the span of seven years. However, now that the story has been exposed, he will more than likely be infamously known for this feat. Rajaratnam was the owner of Galleon Hedge Fund and it was believe by many that he used a mathematical model to boost his company's earnings in the double digits each year. The truth is that Rajaratnam formed relationships with young executives in order to can inside information from them. He is said to have been somewhat of a difficult person to work for and many of his analyst felt constant pressure to get inside information.

In Intel employee was expected by her company of giving Rajaratnam insider information. They investigated her, found her guilty and terminated her employment. However, the SEC failed to bring any charges against her and she subsequently went to work for Rajaratnam at Galleon. It was later discovered during an investigation that this person had sent emails to Rajaratnam providing him with insider trading information.

Martha Stewart and Raj Rajaratnam have cases that are different in scope, yet both deal with insider trading. Stewart used nonpublic information to avoid a small loss and Rajaratnam used insider tips to amass a fortune. Stewart was found guilty because she perjured herself and it is likely that Rajaratnam will be found guilty as his story unfolds.

V. CONCLUSION

When people invest in stocks, the expectation is that the market is fair and that everyone will be provided with information on their investments...

This is generally how the market is run with information eventually being made to the public. However, there have been many cases where certain individuals on the inside of a corporation have pertinent information not yet made known to the public. These insiders at times will use this information in order to avoid a loss or gain profits. This has been determined to be unfair and as such, harsh penalties and even prison time can accompany these illegal actions.
There are those individuals that believe that the stock market should be a free market and not governed or regulated in any way. The do not feel that certain forms of insider trading should be classified as illegal. But, if we follow their rules and mode of thinking the investor on the outside will soon come to realize that he has an unfair advantage when investing in stocks because he is not privy to the information that the insiders have. This creates an unbalanced society where the rich will continue to get richer by capitalizing on information that all investors should have equal access to. This is something that should not happen.

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Marianne Jennings,…