Prohibitions against insider trading seek to reassure investors that corporate managers and other with an obligation to the public (that is, those with fiduciary responsibilities) do not act in their own or others’ financial interest on the basis of information that is required to be but has not yet been disclosed regarding business developments, such as serious pending financial losses.
The term “insider trading” first was employed in regard to American business during the 1980’s, when Congress decreed tough penalties for the practice and the U.S. Department of Justice began to move aggressively against those charged with the behavior. The United States is regarded as having the most stringent laws in the world against insider trading.
The 1980 the U.S. Supreme Court decision in
Insider trading often is difficult to prove because it is essential to show that nonpublic information has spurred a transaction rather than, as the accused is likely to claim, a hunch or some other financial motivation, such as the need for cash. The case of editor and homemaker advocate Martha
Considerable debate exists about the value of prohibitions against insider trading. Some insist that it is economically counterproductive because to permit insider trading would alert others at an early moment about impending developments and allow them to arrange their holdings to cope with such contingencies. Those favoring a tough enforcement stance maintain that in the absence of vigilant oversight to ensure market integrity, the capital necessary to fuel the economy would not be entrusted to the stock markets.
Bainbridge, Steven M. Securities Law: Insider Trading. New York: Foundation Press, 1999. Szockyj, Elizabeth. The Law and Insider Trading: In Search of a Level Playing Field. Buffalo, N.Y.: William S. Hein, 1993. Wang, William K. S., and Marc I. Steinberg. Insider Trading. New York: Practicing Law Institute, 2005.
Stock market crash of 1929