The SEC recently uncovered an
insider trading ring that began in 2009 involving a high level employee at
Applied Materials. Using confidential information obtained from Applied
Materials and Rovi, Christian Keller advised a Barclay’s analyst to make stock purchases,
prior to news releases, allowing them to collect profits, which were not legal.
The Securities and Exchange Commission
defines “insider trading” as conduct that can be classified as legal or illegal.
Legal conduct takes place when employees, corporate & directors buy and
sell stock in their own company, reporting these sales to the SEC. Illegal
conduct is explained as buying and selling stock while being in possession of
nonpublic information or individuals who have been “tipped off” to the
information and engage in securities trading. If it is both legal &
illegal, is it an ethical issue? This question appears to be the source of many
debates, as the legality of a situation does not always make it ethical or
unethical.
The first issue that is noticeable
is the issue of rights. If the individuals that have the advantage of proprietary
information and use that advantage to their gain, they are assuming their right
to succeed is higher than the traders whom are not privy to this information.
Who is to decide that one person’s rights are higher ranking than other
individuals? All individuals are subject to the base equal rights in today’s
society, the postmodernism thought of everyman for themselves is encroaching
upon our society in a negative light more and more each day.
The second issue that can be
caused is economic inequality. Individuals that have an unfair advantage can
avoid large monetary losses or can gain large sums of money, dependent upon the
information given, while those without that information do not have the same
advantages.
Insider trading that is done in an
illegal manner is unethical. There are a few ethical issues raised by insider
trading, these issues are addressed in the Theory of Justice, contributed to by
John Rawl. This theory is based on
inequalities, fairness and impartiality in relation to social contracts; it is
a form of a rights based theory. (Ethical Theory, pg 608-609). The right to
equal information in the securities market is touted on various blogs as being
a first priority for those involved in the industry. John Rawl states that social contracts should
be made under a “veil of ignorance, essentially decisions should be made for
the good of everyone.
Rawls theory agreeable as he
theorizes that when entering into a social contract decisions are to be made
without knowing what side of the issue you will be one, allowing decisions to
be made that will not provide an advantage to one group over another. This is
how business should be done, allowing equal opportunities to all involved. This
does not mean that everyone involved will have an equal outcome; however they
will go into the playing field on equal ground, and come out on top or bottom
through their actions and decisions made. By using information gained in an
unfair manner in order to obtain an advantage in the market, Keller and his
associates were acting in a highly unethical manner.
Companies that are engaging in a
market industry such as securities trading assume they have employees that are
trusted to not use confidential information for personal advantage, as these
acts reflect upon the company. Companies
that are publicly traded need to ensure that their employees are properly
trained on their policy of confidentiality and sharing of resources as well as
the legal implications faced in these rules and regulations are not followed.
In order to avoid these types of
allegations publically traded companies should ensure that confidential
information that could affect their stock value is only distributed to those
whom MUST know. They individuals trusted with this information should be
required to sign a non-disclosure agreement. Obviously this is NOT a fail all
method, however it will provide a refresher to employees that they are not to
use company information for personal gain; they cannot claim that they were
unaware of the legalities. Although, morally this should be ingrained.
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