Insider trading has to do with an employee revealing confidential information about the rise and fall of stock value to investors of that stock. Reading the technical note, I was a bit conflicted about my personal views and the effect or the wrong reasons for participating in insider trading.
Insider trading is wrong and ethical, it can lead to the end of an organization. The stakeholders on opposite sides of the fence were considered. Organizations are aware of the uncertainty of stocks, the organization is either trying their possible best to make the most out of the situation or trying to get ahead of the situation and control it. The board of the organization has a responsibility to the organization itself, to employees, to create employment and to provide or increase value for their shareholders.
Organizations are given no choice when information is released by staff. Employees share information with others, the media gets a hold on the story, it causes panic, investors are selling shares bought at a reduced price just to get ahead of the crash and get back a percentage of their money invested. Understanding that the world does not revolve around cause and effect but it does in the stock market, one little rumor about a medical product will lead to falling in the stock value;
In addition, the employees of the firm choose between unemployment or taking a pay cut. Since the organization is struggling, the senior staff can survive on savings. Senior staff can get other jobs, the junior staff are strained on their basic salary; taking a pay-cut is hard but they have to provide for the family. Insider trading can lead to a fall or crash of the stock market.
Another side of the fence
On the contrary, a senior staff reveals the information in confidentiality to his lawyer, the lawyer has previously advised a client of his to invest in the stock. A farmer has invested all his profits in the stock market, losing all profits means he will lose all sources of livelihood, he already has two mortgages on his land, the bank will seize the land, his daughter is in college, she depends on her father for tuition.
The lawyer knows the effect or how the impact of the crashing stock will affect the farmer, he does inform the farmer of his concerns, the farmer sells his stocks but asks his daughter for advice, she gets the information then word gets out.
Does he not have the responsibility to warn the farmer? Is this unethical? His gain is not profitability, he just wants to protect the farmer! The farmer does not make a profit off what he sells but gains the money invested back. It is hard picking aside when there are so many things at stake. Some people take part in insider trading because of their humanity.
The Tragic Fall!!!