The Essay On Insider Trading Impacts And Measures To Prevent It.

Safeguarding Confidential Information

Question:

Discuss about the Comparative Business Ethics and Social Responsibility.

The issue of engaging in insider trading impacts not only organizations but also the economic conditions of a country (Buzar, 2016). In most cases and just like in the case of Galleon group, most of the people who engage in this unethical business activities do so in order to attain personal advantages. The illegal trading of stock to gain personal advantage through expose non-public information have significant impact to not only an organization but also to economic condition of a countries. This means Regulators, executives and investors should come up with strict measures to prevent such activities do not happen.

Over the past years, companies have been closing down because of being impacted by insider trading. Those found guilty have also ended up serving jail terms and paying huge fines (Jackson, 2012). This means confidential information is quite vital to an organization and should always be safeguarded. In this case, regulators, investors and executive have a role to play to ensure those who try to engage in this type of activities are challenged.

In most cases, the manner in which people who engage in insider trading are investigated and convicted determines the manner in which other people who engage in such activities will perceive the crime (James, 2011). Based on the case study, there are various things which people can learn from the manner in which Rajaratnam was investigated and convicted. Although regulators and other stake holders are trying to stop insider trading, much need to be done to ensure the stock market is secure.

The information-gathering techniques like Rajaratbam’s are common on the Wall Street in the fact that everyone wants to make money. Although insider trading is not legal, people will still undertake it because they believe money is more important than what is right or wrong (Aragon, 2011). The insider trading at the Galleon group case study brings up an important point that the information which analysts in regards to funds and stock is quite fundamental. This means these kind of practices are normal and even common on Wall Street. One of the major reasons why these kind of information gathering techniques are common on wall street is because of the several gains that agents, investors, and other players get, by knowing the inside information, much before the public gets to know the information. 

Investigating and Convicting Those Engaging in Insider Trading

To reduce the practice, regulators, executives and investors should work together (George & Pratt, 2012). Addressing the issue of inside trading is not an easy task because people always feel they can outsmart the established measures. This means those who are concerned with fighting against the issue should team up and assist each other where possible.  All players should ensure those who violate the rules are punished in a manner which can make them change. If the only punished will be slaps on the wrist, other people are going to be more willing to take chances on engaging in insider trading and other unethical practices.

Regulators should always keep a close eye on the firms making a lot of money, ensure there are open lines of communication for whistle blowers, and heavily prosecute the offenders in a manner which can set an example to others. Keeping close eye to companies making a lot of money will assist the regulators to determine if the company makes the money in the right manner or not (Kisilowski, 2014). From this case study, Rajaratnam made a lot of money without considering business ethics. The action taken upon him can be said to be light because based on the nature of crime committed, he could have been given punishment that could make him learn from experience and also discourage other people who may wish to engage in similar activities

To reduce Insider trading and similar crimes, regulators should set strict regulations requiring all organizations to have full compliance, surveillance, supervisory, and control measures in place to identify possible illegal trading (Moon, 2011). They should also guide executives on coming with rules which can direct employees to do what is right. In some cases, crimes such as inside trading happening because there are no proper rules and guidelines which direct employees to behave ethically. Executives should liaise with regulators in ensuring all staff members comply with established regulations. Generally insider trading is illegal, and failing to comply with the established measures should lead to the necessary legal actions.

Apart from punishing, regulators should also ensure those found guilty are taught concerning the implications of engaging in unethical business practices (Buzar, 2016). These can be through establishing training programs in companies, or in prisons to assist the offenders to understand the importance of engaging in ethical and legal business practices. These training programs should comprise of comprise of letting them know the implication of these kind of practise like for example impact on economy, businesses,  and so forth.

Setting Strict Regulations to Prevent Insider Trading

It is also advisable for regulators to expose people who engage in unethical business activities to the public, stating how they were punished. This can assist in preventing these kind of activities from happening (Kline, 2010). If for example Rajaratnam issue was publicly exposed, other people who were engaging in such activities would learn a lesson and choose to do only what is right to earn money.  The information exposed should comprise of the crime committed and the fine or the jail term.

Investors should avoid investing their funds in firms whose integrity track records are not good (Everton, 2011). They should play a role in ensuring the companies they choose to invest their funds complies with all ethical requirements. Because Investors are important stakeholders in companies, assisting to ensure full compliance to ethical requirements can assist in reducing unethical practices because all companies wants to attract more investors and retain the existing ones.

Investors should also come up with powerful data analysis tools to detect illegal or unethical activities that happen in the stock markets. With the powerful data analysis tools, they will be able to spot all suspicious activities when they occur (Greenberg, 2011). Scrutinizing major activities in organizations such as mergers, acquisitions, and divestments is also fundamental because it can assist them to identify if there are unusual practices which can risk their funds.

Executives on the other hand have to be loyal to their staff members and ensure they analyse their employee from time to time to identify their level of integrity. They should also be careful when communicating with outsiders because they can influence the reputation of a company especially when sensitive information is leaked (Leube, 2012). When engaging in any form of communication with untrusted people, it is advisable to first identify their motive and come up with best strategies of responding to their queries.

Executives can also control these kind of unethical activities from happening through setting strict rules within organizations (Shiri, 2016). These rules should be aimed at ensuring their firms have robust compliance with the ethical requirements. They should also ensure there is good surveillance, supervision and control measures to ensure illegal activities are detected and addressed as early as possible.

What are the implications of sharing confidential material information? Is it something that would affect your decision about how to trade a stock if you knew about it?

From the case study, Rajaratnam unethically collaborated with teams from other firms to secretly discuss information concerning stocks that was supposed to remain confidential to the concerned parties. Engaging in this kind of activity is wrong because secrets remains important for the success of businesses (Hazels, 2015). Discussing information that has not been released to the public may make stakeholders to develop negative attitude towards the company especially when the information shared was subject to corrections.

Punishing Offenders and Educating Them About the Implications of such Activities

Confidential information should not be released without the permission from all parties (Tesfayohannes, 2010). In business sector, confidentiality is an inspiration that embraces business techniques and secrets, as well as common understanding through promoting self-belief among the parties. Any information that is termed as confidential usually have great value to businesses and therefore if shared can lead to various implications.

Sharing confidential material information risky and unethically right. The ethical implication of engaging in this kind of fraud is that it leads to unfairness to other investors (ElZein, 2013). It is also unethical because it involves getting money through illegal means. The activity is risky because it has various consequences which can not only affect the person involved but also other people.

The other implication of these practices is that it can make one to be in trouble with many aspects including the law (Gaughan, 2011). For example, based on the case study, Rajaratan and his colleagues landed in trouble of serving jail term and even paying huge amount of money as fine. Being jailed because of engaging in this type of activities also makes one waste a lot of time which he/she would have used to do better things.

When a company insider shares a confidential material information with the wrong people, the investor gets an unfair advantage (Geis, 2011). To illustrate, firms that trade publicly on stocks exchanges have to openly unveil their quarterly financial statements at designated and scheduled months and dates to the stock exchanges. Once the information is publicly declared, it is becomes a level playing field for all the investors and the stock prices can go up or down depending on this additional information.

Insider trading is illegal in the fact that it is unfair to the other parties in the trade markets. In a market where insider trading takes place, companies and investors lose a lot in terms of finances. As a result of this, they choose to utilize their money in doing other things instead of investing where security of their funds is not guaranteed (Peterson, 2012). Investment plays a key factor in determining the economic condition of a country and therefore if little or no investment takes place a country maybe at the risk of experiencing economic distress.

In some cases, engaging in this kind of business activities can make one to be banned from the industry. One of the reasons why this action may be taken is because this kind of activities have a significant impact to performance of organizations and in most cases may make some of them to collapse (Harris, 2010). From the case study, some of the companies where Rajaratnam worked collapsed because of being victims of insider trading. Closing down of organizations may have serious impact to the country because it may lead to increase in criminal cases because of unemployment, economic downfall among others.

Investor's Role in Ensuring Compliance with Ethical Requirements

Sharing confidential information may lead to serious financial issues in companies. The reason for this is because apart from profit generation, firms also require money in order to operate (Dolgopolov, 2010). When this fraud happen, investors will also fear investing with affected companies, where in some cases those who have already invested end up pulling out their investments in fear of losing their money. This brings serious impact in the companies which in some cases make them to close down.

From the case study, Rajaratnam was charged with different cases of fraud and conspiracy. The fraud activities he committed had a significant impact to the thriving company. It also impacted the stock market and financial condition of every person who was involved in the conspiracy. From this scenario, it is evident that this kind of fraud has serious implications to the offender, the market, and the economy at large.

This kind of information would dramatically impact my decision concerning how to trade stock mainly because it is illegal and the justice system do not allow the legal rights to do so.  There are numerous implications of trading stock in an industry where these activities are rampant and therefore if I was aware about it, the best option would be choosing not to make any decision concerning the stock.

The reason why I would choose not to make any decision concerning trading a stock is because insider trading risks investment and no one wants to be involved or invest in companies or markets where security of finances is not guaranteed. Insider trading does not give fairness to investors and therefore if one knows that such activities occur, then he/she will not consider doing other things rather than trading a stock.

Do you think the secret investigation and conviction of Rajaratnam and other people in the Galleion network will deter other fund managers and investors from sharing non-public information?

The manner in which law offenders are punished determines the chances of repeating similar offences or other people committing similar crimes (Dugan, 2016). In situations where the public is not allowed to know how offenders are punished, then people may fail to understand the consequences of engaging in this kind of crimes. To avoid serious misconducts like insider trading from happening, regulators should have nothing to hide when investigating and convicting those found guilty. The process of undertaking investigation and conviction should be aimed at punishing the offender and acting as a lesson for those who may wish to engage in similar activities.

Secret investigation and conviction of Rajaratnam and other individuals in galleon network will not deter other fraud managers and investors from sharing non-public information because in the society there will be people who will always think they can outsmart the system (Dhaoui, 2015). People will always engage in these kind of frauds paying much attention of the benefits and not the repercussions. For example from the case study, Rajaratnam was much on the gains than what he could suffer from the action, or how the action would affect other people. Most people like Rajaratnam usually have the mind that “I will not be caught.” This makes them to undertake the unlawful activities with the mentality of attaining personal gains without thinking about the consequences.

Stopping this kind of fraud will be hard because people will always come with new tactics. People who have high desires of becoming rich will always search for all means of attaining money (Jolly, 2013). Once a particular control measure is established, they come up with a new tactic to outsmart it. This means regulators, executives and investors should always be on watch out and come up with proper measures that can fully challenge those who engage in such crimes.

The other reason which can make it hard for the technique used to investigate and convict Rajaratnam to discourage other fund managers and investors from sharing non-public information is that in some cases people feel that even if they attain a lot of money and go to jail, at some point they shall come of the jail and still enjoy the money they attained (Zhou, 2014). To address this issue, investigations and conviction should be made in such a manner that will make others to see the problem of engaging in illegal practices. For those found guilty like Rajaratnam, investigations and conviction should never remain a secret. They should be exposed to the public so as to know that there are consequences associated with the practice.

For those found guilty, there should be a requirement to refund the illegally acquired money and pay fine. This will assist in eliminating the mentality that even after serving the jail term one will be released and still enjoy the money he/she acquired (Everton, 2011). The fine should be huge enough so as to assist other people who might have the mentality of engaging in similar practices to realize the consequences associated with it once caught.

Based on various aspects like the jail term, fine and other factors, Rajaratnam’s case cannot play a role in discouraging other fund managers from practicing insider trading. The only way of preventing such activities from happening is regulators, executives and investors working together to educate employees about the repercussions of engaging in such kind of frauds (Gaughan, 2011). Executives should also ensure employees are given better compensation for the work they do so that they cannot find the reason of engaging in activities which can have negative implications in their lives. Investigation, conviction and freeing of those found guilty is not a solution to the problem because even those who are jailed and released repeat similar crimes.

Conclusion

In conclusion, information gathering techniques like Rajaratnman’s are common on Wall Street because the aim of most people is to make money irrespective of whether the situation is right or wrong. To avoid such frauds from happening, regulators must ensure strict legal measures are established and the right actions are taken upon those who violate them. Executives should also play a role through being loyal to their staff members. They should be careful when communicating with outsiders and should always scrutinize the people they hire to determine their integrity level. Investors should avoid investing their funds in firms whose track record in terms of integrity is suspected.

There are various implications of sharing confidential material information. Some of these implications comprise of wasting a lot of money in paying fines and a lot of time while serving jail terms. Sharing confidential material information can also have serious impact on economy and performance of companies. Engaging in such activities can also make one to lose a job and be banned from the industry.

Secret investigation and conviction of Rajaratnam and other people at the Galleion group will not discourage other fund managers and investors from sharing non-public information because people will always think that they can outsmart the system. People will also engage in such activities in order to get money without considering whether the activities are right or wrong. It is important for regulators to ensure the manner in which such cases are handled is made public. When dealing with this kind of crimes, it is also advisable to ensure the punishment given is worth making other people who may wish to engage in such crimes to learn a lesson.

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