Illegal Insider Trading?
Q: Aren't there some strict rules against individuals trading stocks based on information from company insiders? Forget the politics - the SEC should go after everyone who has made big money on such trades, and had close ties to an executive of the company of the stock that was traded.
A:
There are a few problems with nailing people
for insider trading:
It can be very tough to associate a person's
trading activity with a particular piece of
information and to prove that the person is
trading based on that piece of information.
The only way this can really be done is if the
SEC taps the person's phone lines and mo
all of the person's trading activity.
Even if this is done, insider trading
may not be provable in a court of law.
Most executives periodically sell a small portion
of their shares because most executives receive
stock options as a large portion of their compensation.
As a result, it can be very difficult for anyone
to claim that an executive is trading on inside
information if he always sells the same number of
shares every month.
As another poster has pointed out, such cases are difficult to
prove. Nevertheless, the SEC has a fairly good track record
of successfully prosecuting such cases. Certainly, in Canada we are
treated to a fairly diet of business articles complaining that the
Canadian regulators are neither as agressive nor as successful as
the SEC in prosecuting illegal insider trading.
Whether the SEC successes continue or not may well depend on the
politics. There is a fairly large segment of the current adminstration's
backers that regularly voices the opinion that insider trading
of all types is just not a problem and the SEC should not be
bothering with it. The fact that Bush's latest budget proposal
specifically denies the SEC request for more enforcement indicates
that "It's not important" lobby is being successful.