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Fraud and Insolvency Cases
Insider trading suspected in major USA mergers
Monday, September 20, 2010
Insider trading is difficult to prove without a paper trail but sometimes the signs are obvious. Studying the stock prices of major corporations over a one year period helped highlight that insider trading was taking place. In this Insider Trading video below it states 40% of stock prices leading up to mergers over $1b USA experience spikes BEFORE the announcement was made.
The continued policing and prosecuting of insider trading is seen as improving the credibility of the market and creating a more level the playing field for investors.
Insider trading laws in Australia have become far more relevant to the majority of the population. Traditionally insider trading was considered a white collar crime of a select few wealthy individuals with "inside" knowledge of businesses.
Australia now has one of the highest ownership of investment shares in the world. Therefore many Australians take an active interest in stock prices and follow the Australian share market closely. Good trading tips always seem welcome but be warned.
Insider trading is illegal in Australia. It is considered a white collar crime but it is also quite easy to overstep the mark as this cartoon video demonstrates. Click on the YouTube graphic below to watch a scenario of a not-too-ridiculous event. Seemingly innocent stock tips can land yourself and others in trouble. The 'best shares to buy' tips are not worth it if you end up with a criminal conviction.
Insider trading is illegal in Australia… but what is an insider trading definition?
The simplest definition of Insider Trading is taking advantage of information that is not public.
This 'inside' information is most often seen as being used to give someone an unfair advantage in the buying or selling of shares or stocks.
Australians are now more likely to personally own shares in companies in which we work or where a member of our family or close friends work. When you include superannuation even more Australians own stocks and shares. Everyone would appreciate knowing ahead of time if a stock is likely to rise, or if it is about to fall.
It is considered natural to ask friends or family who work for companies on the Australian stock exchange for insider information on trading tips of shares. Your innocent question over a BBQ of "what's happening at work?" could however land you, and your friend, in court facing insider trading penalties? It depends on whether the information being shared is already 'public' knowledge. If your friend’s answer convinced you something significant was about to happen and that you should be selling, or buying, shares then a court may consider it insider trading?
Likewise how would the law courts consider if you saw a confidential report on the photocopier at work about a major loss or new investment and bought or sold shares? What if based on the information you had seen you told some friends or family to expect shares prices to change? Insider trading can appear quite innocent, but the reason Australian Courts treat it as a crime is that it gives 'insiders' an unfair advantage over the general public.
This video includes a brief definition of insider trading.
The reason insider trading is illegal is that one person, or group of people have an unfair advantage over others. In the perfect world no one would know more than anyone else. Obviously the world is not perfect.
Naturally some people must know information before it is made public. Businesses are continually evaluating opportunities and discussing strategies behind closed doors. This is not illegal. The reason insider trading laws have been created is to help ensure that those who are part of these discussions cannot unfairly profit from that prior or 'inside' knowledge.
The dramatic increase in online trading and buying shares has meant insider trading is no longer restricted to an elite group of business owners and their close friends. While a criminal insider trading case may be difficult to prove the financial services industry in Australia has gone through many changes over recent years. The restrictions on giving financial advice are complex. The need for clear documentation and explanations around advice given has increased dramatically. Simply asking your friends "what's the best shares to buy" is no longer so simple.
In this video below it gives advice on what to do if you suspect insider trading. It also suggests you walk away rather than be tempted to make use of inside information you may have received.
Insider trading only became illegal in 1960's when it was felt some individuals had an unfair advantage over others with the buying and selling of stocks. In 2009 an article was published supporting a fairly radical idea for insider trading to be decriminalised again. It is a very controversial idea.
Since the 1960's insider trading regulations have continued to be expanded. The video includes a discussion that fraud and insider trading are often linked. The article's author believes is that allowing markets to drive stock prices to realistic values is fairer. The counter argument is that it still gives an unfair advantage to some.
For the author insider trading is not fraud but rather is more likely to expose corporate fraud. The video also highlights the relative lack of resources being used on examining and trying to prevent Insider Trading.