SAC Capital is obvious case of using inside info to make money. Get inside info and trade on it. Did Cohen really think nobody would notice? But there have to be other ways to use inside info to make money, especially for insiders. Let's say you're an insider, the CEO or another employee with access to info. How to legally make money, other than doing your job? Some possible ways: a) sandbag results ahead of positive info. Save good info for future quarters. Load expenses into Q1, depress the stock, issue yourself shares/options, announce new contract, then announce better results in Q2. Profit. This happens too often to count. b) the Global Crossing scheme. Hype the stock, sell shares, get out. Crude but effective. c) acquire bogus company (Mattel/Learning Co). Announce acquisition of known fraudulent company for low price. Stock soars. Sell shares. Announce discovery of fraud. Blame fraud on acquired company. d) use subsidiaries to buy shares in own co. This is the Warren Buffett approach. He would use insurance subs to buy shares in Berkshire, concealing the self-dealing. Results improve, stock squeezed. Sell shares. Repeat. e) Announce large deal with supplier. Short shares. Cancel deal. Profit. An Apple insider could have done this with GTAT. Not even necessary to cancel deal. Supplier incompetence is enough. f) hype then short shares. Hype the stock. At the same time, buy puts. Stock falls on bogus hype, profit off puts. The Rainforest Cafe did this, it bought puts on its own stock. g) Enron strategy. Use subsidiaries to buy shares, shares rise, profits rise, stock rises. Repeat until stock falls and somebody goes to jail.
insider trading should be completely legal. The worst case ever prosecuted was Martha Stewart. What was she supposed to do? Go to the SEC and tell them she just got some negative info on a stock she owned and ask them, "May I sell the stock? Mother may I?"
if I remember, she was selling because the stock was going down. she figured that other people knew, so she sold. that was her training as a stock broker kicking in.
If insider trading were "completely legal", public equities will merely become a vehicle for unscrupulous executives and a handful of their lawyers to get rich. No one in their right mind would invest in such a market, unless they were simply looking to gamble (not unlike many Pink Sheets companies today). "Insider trading should be completely legal" is tantamount to saying "public stock markets should not exist", except as negative-expected-value casinos. The non-insiders lose in insider trading, with high probability; and with certainty, on average. It's hardly a victimless crime; arguments to the contrary always overlook where the money goes and who's losing.
With the proliferation of internet/cellphones/print/electronic media is it possible to prevent insider trading?
Aren't most of the insider traders caught because of cell phones? There was inside trader ring that used an actual person as go-between, but even that ring was caught when the go-between started trading on the tips.
Just shows that a consistently profitable trader that does not need insider trading is a very rare "commodity".
Martha Stewart was never convicted of insider trading : she was convicted of lying to Federal Agents trying to cover up what she believed was insider trading. We should allow actual insiders to trade freely provided they reveal their trades publicly at least 24 hours ahead of time : Other shareholders will be free to front-run the insiders. Unfortunately this would not prevent insiders from trading secretly through others, so we still need to keep insider trading illegal, unless you reveal your trade 24 hours ahead of time.