...Insider Trading - An Analysis in Corporate Regime 1. Introduction Man amongst all species has proved himself to be the greediest creature since times immemorial. His greed has made him stop as low as possible in utter disregard for all principles of fair play, honesty, morality, etc. In the past and particularly in the last two decades we have witnessed many instances not only at National level but even across the globe where some genius brains have been able to use the vulnerable platform of stock market to their own advantage by enriching themselves enormously at the cost of unprecedented financial losses to thousands of others. A common tool used by these manipulative brains is what in common parlance is known as Insider trading. With the vast developments in trade and commerce all over, every person has become very materialistic. That is the reason why people in general and particularly those in business have developed profit motives. And it is quite often that to fulfill their own monetary expectations, such people employ illegal or immoral means. One such illegal method used by some vested interests in area of corporate business is insider trading.[1] Thus, when an insider of a company uses its price sensitive confidential information to buy or sell its securities thereby making a personal profit, he commits acts to the detriment of the interests of bona fide investors of the company. However, in reality, insider trading can be both legal and illegal. Legal in...
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...Horrvich, a third-year financial analyst at General Electric Capital Corporation (GECC) in September 1987: ‘‘I don’t know anything about investment banking. If I walk in there with a lot of amateurish ideas for what he ought to do with Kidder, Cathart will rip me apart. OK, you’re the boss, but why me?’’ ‘‘Look Alan’’, replied Mr Leo Halaran, Senior Vice-President, Finance of GECC: ‘‘we’ve got ten thousand things going on here right now and Cathart calls up and says, very politely, that he wants somebody very bright to work with him on a strategic review of Kidder Peabody. You’re bright, you spent a semester in the specialised finance MBA programme at City University Business School in London, you earned that fancy MBA from New York University down there in Wall Street, and you are available right now, so you’re our man. Relax, Si isn’t all that tough. If you make it through the first few weeks without getting sent back, you’ve got a friend for life. . .’’, he ended with a grin. ‘‘Me.’’ Mr Silas S. Cathart, 61, had retired as Chairman and CEO of Illinois Tool Works in 1986. He had been a director of the General Electric Company for many years and was much admired as a first-rate, tough though diplomatic results-oriented man- ager. After the resignation of Mr Ralph DeNunzio as Chairman and CEO of Kidder Peabody following the management shake-up in May 1987, Mr Cathart had been asked by Mr Jack Welch, GE’s hard-driving, young CEO, to set aside his retirement...
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...similarity, they have one thing in common and that is spending time in a federal prison. Martha Stewart Martha Stewart is a successful businesswoman, and she has established a well-known business. Martha Stewart committed a crime of “…obstructing justice, conspiracy, and making false statements during an insider trade investigation…” (Crawford, 2004). Martha was found guilty of the charges brought against her, which she did receive a prison sentence of five months in a federal prison. Afterwards Martha was placed on house arrest for an additional two months and served two years of probation. The federal prison where Martha was detained to was Alderson Federal Prison. Alderson Federal Prison is known as the oldest prison for women. Alderson is a minimum security prison that was set up to rehabilitate women prisoners back into society. Ivan Boesky Like Martha Stewart, Ivan Boesky was incarcerated for insider trading as well. “Once considered wall street’s leading speculator in stocks of potential takeover targets, Boesky shocked the securities business on Nov. 14 1986, by settling civil SEC insider-trading charges” (Press, Boesky gets 3-year prison term for insider trading, 1987). Ivan was sentenced to three years in Lompoc Federal Prison. “The Lompoc Federal Correctional Complex (FCC) consists of two main facilities: FCI Lompoc which is low security…and...
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...Abstract Insider trading is a serious crime. The general public is held accountable, and yet, it is legal for members of Congress. There are several cases involving members of society being prosecuted for their illegal activity of insider trading; while Congress has exempted their members from acting on the same type of information. This type of conduct has serious legal, ethical and moral considerations. This paper will address the definition of insider trading. The legal, ethical and moral considerations of insider trading will be outlined, through a snap shot of the legal precedence recently in the press involving congressional behavior. It will further look at cases that have made headlines in past years, to show the distinction of what can happen to the general public who participate in insider trading. During a recent article by Parloff (2011), he stated, “The problem arises with respect to market-moving information a congressman learns in the course of doing his legislative work.” This comment is at the heart of the issue involving insider trading and Congress. The people elect members to Congress to act in their best interest. When the people of society feel members of Congress have violated that trust under legal, ethical, or moral wrongdoing, the members of society make decisions based upon those standards set by Congress. Thus members of society participate in insider trading knowing it is legally wrong. Insider Trading Insider trading can be a severe crime...
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...Bangladesh University of Professionals EMBA , Legal Environment of Business. Dr. Ridwanul Hoque: ridwancu@yahoo.com Regulation of business What is regulation?: t o say what to do and what not to do; to draw a periphery of corporate powers. And, is regulation anti-thesis to financial regulation thought to be generative of economic progression?: It is in no way a hindrance to economic performance by corporate entities. Absence of regulation leads to non-environment for business and the dilution of shareholders’ interests. Importance of regulation can be understood with a reference to the benefits of state control in the banking sector. One can take, for example, the case of the recent saga of Oriental Bank Ltd., in the morbid-situation of which the state intervened to protect the public’s money from being further lost. To note one author: “ Depositors entrust their savings to a bank, based on faith that thus money will be duly safeguarded and returned to them when they need it, The banks, in turn, lend their depositors money to borrowers … based on a trust that he borrowers will return the money ….”.[1] In order to protect the public interest and the business trust as depicted in the above paragraph, there needs to be legal protection in place. This is where state regulation comes into play in the marker arena. Two ways of regulating market are: legal regulation and corporate governance regime (which may be based on both private initiates...
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...Commonplace 4. Rare 1. What is the primary source of an organization’s right to expect employees to act on its behalf? 1. Common decency 2. Morality 3. Common law 4. Contract 1. The buying or selling of stocks by business insiders on the basis of information that has not yet been made public is 1. Insider trading 2. Business broking 3. Hedging bets 4. Whistle blowing 1. The SEC is the 1. Securities and Exchange Commission 2. Securities and Exchange Counsel 3. Social Excellence Committee 4. Social Expense Commission 1. Which theory of insider trading did the U.S. Supreme Court endorse in 1997? 1. The misappropriation theory 2. The misapplication theory 3. The stock-bond theory 4. The whisperer theory 1. Which Supreme Court case addressed insider trading in 1997? 1. a. Griswold v. Connecticut 2. b. Roe v. Wade 3. c. Brown v. Board 4. d. U.S. v. O’Hagan 1. Henry Manne 1. Thinks insider trading is illegal 2. Thinks insider trading is immoral 3. Sees nothing wrong with insider trading 4. Sees insider trading as a violation of trust 1. It is claimed that insider trading is good as it 1. Increases market efficiency 2. Adds another benefit to employment 3. Increases the wealth of insiders 4. Decreases company disloyalty 1. Proctor and Gamble once sued three rival food chains for making 1. Immoral pickles 2. Infringing cookies 3. Debatable...
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...Commonplace 4. Rare 1. What is the primary source of an organization’s right to expect employees to act on its behalf? 1. Common decency 2. Morality 3. Common law 4. Contract 1. The buying or selling of stocks by business insiders on the basis of information that has not yet been made public is 1. Insider trading 2. Business broking 3. Hedging bets 4. Whistle blowing 1. The SEC is the 1. Securities and Exchange Commission 2. Securities and Exchange Counsel 3. Social Excellence Committee 4. Social Expense Commission 1. Which theory of insider trading did the U.S. Supreme Court endorse in 1997? 1. The misappropriation theory 2. The misapplication theory 3. The stock-bond theory 4. The whisperer theory 1. Which Supreme Court case addressed insider trading in 1997? 1. a. Griswold v. Connecticut 2. b. Roe v. Wade 3. c. Brown v. Board 4. d. U.S. v. O’Hagan 1. Henry Manne 1. Thinks insider trading is illegal 2. Thinks insider trading is immoral 3. Sees nothing wrong with insider trading 4. Sees insider trading as a violation of trust 1. It is claimed that insider trading is good as it 1. Increases market efficiency 2. Adds another benefit to employment 3. Increases the wealth of insiders 4. Decreases company disloyalty 1. Proctor and Gamble once sued three rival food chains for making 1. Immoral pickles 2. Infringing cookies 3. Debatable...
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...KIDDER PEABODY GROUP In the last years the financial market has been hit by many financial scandal the most recent in 2000s are Enron and Parmalat which has affected the entire market. This paper is going to take in consideration an old scandal the Kidder Peabody Group that first has been implicated in insider trading and later in a complicated method for which losses counted as huge profit. In specific this paper will analyze the case study of Kidder Peabody Group starting with brief overview of the company, then analyze the motivations and synergies that GE and Kidder Peabody should have got and finally it will explain the strategy that the bond department especially Joseph Jett used to falsify the books. The company was founded in 1865 in Boston by Henry Kidder, Francis Peabody and his brother Oliver. The company grew between the end of the 19th and begin of the 20th century where it became a leading bank in New England and a major player in the US financial market. In fact it opened an office in Wall Street, New York. The firm’s headquarter stayed in Boston until the Wall Street crash in 1929 where Kidder had to face some financial difficulties. Here thanks to some investors that injected the necessary capital recue Kidder Peabody and Chandler Hovey, Edwin Webster, and Albert Gordon became the new partner. The firm survived the difficult 30s and got back its leading position among the most important investment bank after the end of World War II. In 1985 Kidder Peabody...
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...Capital Asset Pricing Model: The Indian Context R Vaidyanathan T he Capital Asset Pricing model is based on two parameter portfolio analysis model developed by Markowitz (1952). This model was simultaneously and independently developed by John Lintner (1965), Jan Mossin (1966) and William Sharpe (1964). In equation form the model can be expressed as follows: E (Ri) = Rf + (i [E(rm) – Rf] = Rf +(im / (m (E(Rm) – Rf / (m) Where E(Ri) is expected return on asset i, Rf is the risk-free rate of return, E(Rm) is expected return on market proxy and (i; is a measure of risk specific to asset i. This relationship between expected return on asset i and expected return on market portfolio is also called the security market line. If CAPM is valid, all securities will lie in a straight line called the security market line in the E(R), (i frontier. The security market line implies that return is a linearly increasing function of risk. Moreover, only the market risk affects the return and the investor receive no extra return for bearing diversifiable (residual) risk. The set of assumptions employed in the development of the CAPM can be summarized as follows [Sears and Trennepohl (1993)]: 1. Investors are risk-averse and they have a preference for expected return and a dislike for risk. 2. Investors make investment decisions based on expected return and the variances of security returns, i.e. two-parameter utility function...
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...Markets and Information Market Efficiency Overview So far we have considered a number of asset pricing models These have all required that price is a good reflection of value Is this likely to be the case? How? Why? Week 5 FINS5513 2 Today Trend and predictability Efficient market hypothesis Implications Supporting evidence Behavioural biases Barriers to the EMH Anomalies Can we build a fully efficient market? Week 5 FINS5513 3 Market Efficiency Efficiency in engineering: the best possible use of the inputs. An efficient market: investors make the best possible use of information. A useful initial perspective: As speculators we are trying to predict where a stock price will be in the future. Do we know anything today that will help us make this prediction? Week 5 FINS5513 4 Price of GE 104 102 100 98 96 94 92 90 88 0 Week 5 20 40 FINS5513 60 80 100 5 Are Prices Predictable? There are apparently short-run trends If we know we are at the start of a downward trend, sell short If we know we are at the start of an upward trend, buy How do you know when a trend is starting? ending? Can we devise rules (statistical or “technical”)? Week 5 FINS5513 6 Trend and Predictability The price path is simulated: Price(Today) = Price(Yesterday) + x, where x is a standard normal random variable This process...
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...Insider Trader In the United States and Germany, for mandatory reporting purposes, corporate insiders are defined as a company's officers, directors and any beneficial owners of more than 10% of a class of the company's equity securities. Trades made by these types of insiders in the company's own stock, based on material non-public information, are considered to be fraudulent since the insiders are violating the fiduciary duty that they owe to the shareholders. The corporate insider, simply by accepting employment, has undertaken a legal obligation to the shareholders to put the shareholders' interests before their own, in matters related to the corporation. When the insider buys or sells based upon company owned information, he is violating his obligation to the shareholders. For example, illegal insider trading would occur if the chief executive officer of Company A learned (prior to a public announcement) that Company A will be taken over and then bought shares in Company A while knowing that the share price would likely rise. In the United States and many other jurisdictions, however, "insiders" are not just limited to corporate officials and major shareholders where illegal insider trading is concerned but can include any individual who trades shares based on material non-public information in violation of some duty of trust. This duty may be imputed; for example, in many jurisdictions, in cases of where a corporate insider "tips" a friend about non-public information...
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...notes issued by Co-Op “securities”? Reeves v. Ernst & Young, 494 U.S. 56, 110 S.Ct. 945, 108 L.Ed.2d 47, Web 1990 U.S. Lexis 1051 (Supreme Court of the United States) The notes are securities. This case reminds me to the Enron case, Ernst & Young should have noticed this situation before happening. Co- Op’s is liable for these notes. A security is a negotiable financial instrument that represents financial value, Co- op in this case is the issuer of the security. 2 Chapter 41.7 Insider Trading Donald C. Hoodes was the chief executive officer of the Sullair Corporation. As an officer of the corporation, he was regularly granted stock options to purchase stock of the company at a discount. On July 20, Hoodes sold 6,000 shares of Sullair common stock for $38,350. On July 31, Sullair terminated Hoodes as an officer of the corporation. On August 20, Hoodes exercised options to purchase 6,000 shares of Sullair stock that cost Hoodes $3.01 per share ($18,060) at the time they were trading...
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...UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK ------------------------------------- x UNITED STATES OF AMERICA, : : -v: : RAJAT K. GUPTA, : : Defendant. : ------------------------------------- x JED S. RAKOFF, U.S.D.J. 11 Cr. 907 (JSR) SENTENCING MEMORANDUM AND ORDER The Court is called upon to impose sentence on Rajat K. Gupta, who on June 15, 2012, was found guilty by a jury of one count of conspiracy and three counts of substantive securities fraud, in connection with providing material non-public information to Raj Rajaratnam. Federal law requires a court to state, not only orally but in writing, its reasons for imposing a sentence “different from” a Guidelines sentence. 18 U.S.C. § 3553(c)(2). See also United States v. Rattoballi, 452 F.3d 127, 128-29 (2d Cir. 2006). This will be a non-guidelines sentence, and, accordingly, the Court will both read this Sentencing Memorandum in open court and docket it promptly thereafter. Imposing a sentence on a fellow human being is a formidable responsibility. It requires a court to consider, with great care and The notion that sensitivity, a large complex of facts and factors. this complicated analysis, and moral responsibility, can be reduced to the mechanical adding-up of a small set of numbers artificially assigned to a few arbitrarily-selected variables wars with common sense. Whereas apples and oranges may have but a few salient qualities, human beings in their interactions with society are...
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...Stock market crash of Bangladesh in 2010-11: Reasons & roles of regulators Sangit Saha Degree Thesis Förnamn Efternamn International Business 2012 DEGREE THESIS Arcada Degree Programme: International Business Identification number: Author: Title: 11497 Sangit Saha Stock market crash of Bangladesh in 2010-11: Reasons & roles of regulators Andreas Stenius Supervisor (Arcada): Commissioned by: Abstract: The aim of the thesis is to determine reasons of the stock market crash in Bangladesh in 2010-11 and roles of the regulators and government since the crash took place. The theoretical background of the study includes brief introduction of Bangladesh stock market with its structure and different regulatory and intermediary organizations. It also describes one international stock market crash and stock market crash of Bangladesh in 1996. For the theoretical part investigation report of Khondkar Ibrahim Khaled is used as the main secondary resource. The report helps to get background of the crash with reasons and role of different regulatory and intermediary organizations. Self-administered questionnaire is used to obtain primary data for the study. The author sent 25 questionnaires to employees of broker houses and general investors but 18 replied. The result of the Self-administered questionnaire helped author to find some other reason behind the stock market crash in addition with reasons provided in the investigation report. Moreover...
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...Chapter One: Introduction 1.1 Background Functioning of capital market in Bangladesh mainly started with the beginning of trading activities of Dhaka Stock Exchange. It first incorporated as East Pakistan Stock Exchange Association Ltd in 28 April 1954 and started formal trading in 1956. It was renamed as East Pakistan Stock Exchange Ltd in 23 June 1962. Again in 13 May 1964 it was renamed as Dacca Stock Exchange Ltd. After the liberation war in 1971 the trading was discontinued for five years. In 1976 trading restarted in Bangladesh. In 16 September 1986 was started. The formula for calculating DSE all share price index was changed according to IFC in 1 November 1993. The automated trading was initiated in 10 August 1998. In 1 January 2001 was started. Central Depository System was initiated in 24 January 2004. As of November 16, 2009, the benchmark index of the Dhaka Stock Exchange (DSE) crossed 4000 points for the first time, because of the debut of Grameen Phone in DSE. From the year 2007 the market capitalization is growing at a constant pace. The market is growing both in capitalization and trading volume. The growth is fueled by increased demand for financial assets and influx of liquid money. The growth is outpacing the growth of the national economy. Sudden rise of capitalization in DSE has raised the question, whether the growth has been healthy and market is functioning in a justifiable...
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