Last updated on: 8/12/2008 1:44:00 PM PST
Is insider trading a victimless offense?
Peter-Jan Engelen, PhD, Professor of Economics as Utrecht University, and Luc Van Liedekerke, PhD, Associate Professor at the Institute of Philosophy at Katholieke Universiteit Leuven, in their Sep. 2007 Journal of Business Ethics article, "The Ethics of Insider Trading Revisited," wrote:
"...Balancing the pros and cons of insider trading, one has to conclude... that there is very little harm caused by insider trading...
The confidence of investors is not expected to decline, empirical studies showed no decrease of market liquidity and the non-informed counterpart of the insider was not harmed..."
Sep. 2007 - Luc Van Liedekerke, MSc, PhD
Peter-Jan Engelen, PhD
Henry G. Manne, SJD, Dean Emeritus at George Mason University, in a Fall 2005 Journal of Corporation Law article "Insider Trading: Hayek, Virtual Markets, and the Dog that Did Not Bark," wrote:
"...By and large the idea that there is no direct harm from the practice [of insider trading] has held up very well, especially the point that no real damage is caused to an investor who engages anonymously on an exchange in a trade with an insider on the other side of the transaction...
...Furthermore, there is considerable evidence that the harm to market makers exists more in the theoretical world of finance literature than it does in the actual play of the market. Though the argument is theoretically feasible, it seems to be practically irrelevant in the real world."
Fall 2005 - Henry G. Manne, SJD
Robert W. McGee, PhD, JD, DSc, MST, Professor of Accounting in the Andreas School of Business at Barry University, in his Jan. 2008 Journal of Business Ethics article "Applying Ethics to Insider Trading," wrote:
"...The most obvious potential 'victims' of insider trading are the potential sellers who sell their stock anonymously to an inside trader. But... they would have sold anyways, so whether the inside trader buys from them or not does not affect the proceeds they receive from the sale. If the sellers are hurt by having an inside trader in the market it is difficult to measure the damage, and it appears that there is no damage. In fact, the academic literature recognizes that insider trading does not result in any harm to any identifiable group and those who sell to inside traders may actually be helped rather than harmed because they receive a better price..."
Jan. 2008 - Robert W. McGee, PhD, JD, DSc, MST
Homer Kripke, JD, former Assistant Solicitor of the US Securities and Exchange Commission (SEC) and Professor Emeritus of Law at New York University and the University of San Diego, in a Winter 1985 Cato Journal article "Manne's Insider Trading Thesis and Other Failures of Conservative Economics," wrote:
"...Manne has been right in saying that insider trading is a victimless crime...
...[N]o one knows whether those hurt by insider trading are more numerous than those hurt by trading before inside facts have impacted the market, so that they are price-takers taking a faulty price..."
Winter 1985 - Homer Kripke, JD
Stephen Sibold, LLM, former Chair & CEO of the Canadian Securities Administrators (CSA), was quoted in a Nov. 12, 2003 CSA news release titled "Regulators Release Illegal Insider Trading Report," as having said:
"...Illegal insider trading is not a victimless crime... Investors who unknowingly trade with people who have inside information lose because they are in an unequal and unfair relationship. Markets where illegal insider trading occurs can suffer a loss of liquidity if international capital flows avoid them..."
Nov. 12, 2003 - Stephen Sibold, LLM
Thomas Newkirk, LLB, former Associate Director, and Melissa A. Robertson, JD, Senior Counsel, in the Division of Enforcement of the Securities and Exchange Commission (SEC), in their Sep. 19, 1998 speech at the 16th International Symposium on Economic Crime, stated:
"...[T]here are those who argue that insider trading is a victimless offense and that enforcing insider trading prohibitions is simply not cost effective...
...But the options market presents a different story. Professional option writers write options only in response to a particular demand. Where that demand comes from an insider possessing material non-public information, the option writer suffers a loss that would not otherwise have occurred. Additionally, this penny-wise, pound-foolish argument neglects the external costs that result from a perception that insider trading is unchecked. In fact, as regulators throughout the world are discovering, governments cannot afford to turn a blind eye to insider trading if they hope to promote an active securities market and attract international investment..."
Sep. 19, 1998 - Melissa A. Robertson, JD
Thomas C. Newkirk, LLB
CBC/Radio-Canada, in a Dec. 21, 2005 Indepth:Crime report "Insider Trading – What's the Problem?," wrote:
"...Illegal insider trading is not a 'victimless' crime. If you'd bought shares in a company hours before bad news was released, would you think it was just bad luck if you later found out that insiders had been using their privileged knowledge to busily unload their shares? If this happens often enough, the market gets a reputation as an unlevel playing field and investors stay away..."
Dec. 21, 2005 - CBC/Radio-Canada
Elaine Sternberg, PhD, Principal of Analytical Solutions, in her 2000 book Just Business: Business Ethics in Action, wrote:
"...[U]nethical insider trading is not a 'victimless crime'. Understanding that it is misappropriation that renders insider trading wrong makes it very clear who the victims of unethical insider trading are: they are the shareholders whose corporate information has been misappropriated...
...Although the primary victims of unethical insider trading are the shareholders of the company which is the subject of the inside information, they are not the only ones to suffer. If the insider trader is employed not by the subject company, but by a firm which was providing services to it, then that other firm and its shareholders will suffer as well. Because of the employee's fiduciary irresponsibility or theft, that organisation's reputation as a reliable adviser or agent, and consequently its ability to attract future customers, can be impaired..."
2000 - Elaine Sternberg, PhD