Goffer made over $300,000 from the illegal deal. As the case expanded, 13 others were also charged. Altogether, they had acquired approximately $40 million or more in profit during the years 2006-2009 (Krantz). And the list could go on and on. Conclusion - How Does Illegal Insider Trading Affect the Market and Economy?

Unfair advantage. Violation of transparency. Disruptive of a properly functioning market. Investors no longer invest. It begins with the first one and ends with the last. Trading in the market, whether by a professional or an amateur is based on skill and luck. One investor can perform better in the market because he or she learns how to acquire more skill in analyzing equities. But, if one person has an advantage such as inside corporate information no one else has, and he uses it to trade, he now has an unfair advantage (Heakal).

Transparency is now violated in the market. Transparency means that the same information is distributed so that all purchasers of stock receive it at about the same time. So that's where skill and luck enter the picture in how an individual stock trader chooses to use the information. But now the unfair advantage of the illegal trader violates that transparency and disrupts the natural flow of the market. The other investors lose confidence that they can compete and stop investing.

Illegal insider trading does affect both the market and the economy as a whole. To what extent it affects the economy is a matter of debate and it is also dependent on the magnitude of the losses experienced by the insider trading. It affects the labor market mostly for more senior managers of corporations and it impacts the quality of management decisions that are made.

When corporate insiders are allowed to trade on inside information they make decisions that might affect them personally rather than keep the well-being of the corporation and its employees in mind. It also makes the insider more reluctant to distribute what...

The result of that is managers and directors of the company who would normally receive that information in order to more effectively operate the company are uninformed and their decisions are based on less than adequate knowledge. The company suffers. Shareholders may not have full knowledge either since the insider is keeping valuable information to himself.
The insider may also choose projects for the company to invest in that maximize his own profit and advantage rather than that of the shareholders.

What happens because of all of this is that the company, the investors, the market, and the economy are all affected because of the results of these activities and the resultant decrease in the quality of the company, its stock, and in its investors' confidence in continuing to invest not only in the company but in the market as a whole. Once massive investor confidence is lost, the economy of a city, area, state or the country can be negatively impacted. A snowball effect occurs and negative leads to more negative, much like the recent "depression" the country is still suffering from. This is not to imply that this recent economic downturn is caused solely by insider trading, because it definitely was not. But the devastating, lasting effects can be the same.

Works Cited

Heakal, R. "Defining Illegal Insider Trading." n.d. Forbes Investopedia . 18 December 2009 .

Hoffman, D. "Martha Stewart's Insider Trading Case." 1 July 2007. allbusiness.com. 18 December 2009 .

Krantz, M. "On warpath, SEC charges 11 with illegal insider trading." 15 July 2009. usatoday.com. 18 December 2009 .

ProCon.org. "Should Insider Trading by Congress be Allowed?" 11 August 2009. ProCon.org. 18 December 2009 .

SEC. "Insider Trading." 19 April 2001. Securities and Exchange Commission (SEC). 18 December 2009 .