[I think insider trading is an absurd concept based on a faulty legal notion of access to knowledge. Am posting this to learn from my knowledgeable FB friends. What do you think?] Absurdity of “Insider Trading” by Ken West Golfer, Phil Mickelson hit the news recently, but not for his golfing prowess. The SEC and the FBI had him in their telescopic sights for allegedly making stock trades in Clorox Company in 2011. His sin: taking a tip about the company from a golfing buddy—and acting on it. This leads me to my subject today, the absurdity of insider trading. (To make it very clear, I’m not referring to fraudulent activity by such individuals as Bernie Madoff, which has nothing to do with insider trading.) First, a few examples. Secondly, why I think insider trading doesn’t make sense. And, finally, what you and I can do about it. Let’s begin with some real and some hypothetical examples. Phil Mickelson is only the latest of high profile targets by the Securities and Exchange Commission and the Federal Bureau of Investigation. We know what happened to Martha Stewart. She went to jail. Fortunately for her, it didn’t ruin her career. Then Mark Cuban, one of the few individuals able to beat the charges against him. Yet, the SEC has been able to achieve close to 90% conviction rate. Who are the victims, caught up in the Federal dragnet? Financial professional, fund managers, attorneys, staff members, corporate “insiders,” spouses, daughters, and sons. This brings me to the second area: Why I think insider trading doesn’t make sense. Imagine that you are at a restaurant, dining with a friend. During your meal she mentions her work at XYZ Company. She’s excited about a brand new product they’ve developed that could catapult her company into the big leagues. Later, based on her comment, you decide to buy stock in XYZ Company. Caution, you’ve just entered the murky world of insider trading. Why would acting of such knowledge be a crime? According to current law, illegal insider trading is “the buying or selling of a security by someone who has access to material, nonpublic information about the security.” Insider trading is only legal when the general public already has the information being acted on. Insider trading law is built on an economic theory of a “level playing field.” Only when knowledge is public is it legal to act on such knowledge (as applied to the buying and selling of securities). This contradicts the history of most great financial successes. Great financiers across the world have sought knowledge NOT available to the general public. The reason: So they can act on that knowledge and create financial wealth. They take pains to obtain such knowledge, and take the risk of applying it. In essence, insider trading law stifles knowledge, not expands it. If you know that your hard-earned research on Company or Industry X cannot be acted on until it’s public knowledge, you will have little incentive to discover that knowledge in the first place. Why bother? Wait, instead, for the Wall Street Journal and Money magazine to cover it. This leads us to my third area: What you and I can do about it? Assuming you also see insider trading laws as essentially ANTI-Free Market, anti-capitalist nonsense, what can you do? Learn more (as I am beginning to do). Follow the news, read the court cases, and find cogent arguments both for and against insider trading. Become a mini-expert. Most important of all, work to change the status quo and help get rid of such laws which are based on a faulty view of “fairness.” So, let’s summarize. We started with examples. Key point here is anyone can become a target of the SEC. Then, I discussed why I think insider trading doesn’t make sense—it’s based on a faulty economic theory. Finally, I suggested what you and I can do about it. We can become more knowledgeable about this issue. Bottom line: The benefit to you is yet another way to counteract Big Government. And, for our country, a return to a state of sanity. Finally, think about and investigate this issue, beginning right now. Today.
Posted on: Sat, 07 Jun 2014 15:14:37 +0000
Trending Topics
Recently Viewed Topics
© 2015