# Why is insider trading illegal? **URL:** \ **Category:** Great Debates\ **Created:** [April 15, 2013, 12:01am UTC](https://boards.straightdope.com/t/why-is-insider-trading-illegal/655731 "2013-04-15T00:01:15Z")\ **Posts on this page:** 20\ **Page:** 3
**Author:** ![BrainGlutton](https://avatars.discourse-cdn.com/v4/letter/b/82dd89/32.png) [@BrainGlutton](https://boards.straightdope.com/u/BrainGlutton)\ **Post date:** [April 16, 2013, 8:52pm UTC](https://boards.straightdope.com/t/why-is-insider-trading-illegal/655731/41 "2013-04-16T20:52:13Z")
> [@smiling\_bandit](#): > > Whence comes this absurd statement? It ain’t never done so before, and all the rules in the world haven’t stopped it so far. Your assertion is based on faith, and a particularly blind faith at that. Nonsense. Wall Street is like any place else: There is always some crime, but more at some times than at others, and the level correlates with the level and efficiency of law enforcement, preventative as well as punitive. ---
**Author:** ![Hellestal](https://avatars.discourse-cdn.com/v4/letter/h/3ab097/32.png) [@Hellestal](https://boards.straightdope.com/u/Hellestal)\ **Post date:** [April 16, 2013, 9:09pm UTC](https://boards.straightdope.com/t/why-is-insider-trading-illegal/655731/42 "2013-04-16T21:09:20Z")
> [@smiling\_bandit](#): > > That’s not how it works, in any market or nation on earth as far as I know. The information doesn’t have to be gathered conveniently in one place. It just has to be publicly available and the company has a responsibility to make it so; at the same time, they can’t execute trades against information not publicly known. If you’re planning to make big investments, a lot of data-gathering and research is still involved. Nobody has to hand it to you on a platter. The public availability of this information is the silverest of platters I can think of. As far as I can tell (and I could easily be wrong), your point boils down to, “But people still have to _read_ this stuff!” Yes. Yes, they do. But reading isn’t hard. ---
**Author:** ![IdahoMauleMan](https://avatars.discourse-cdn.com/v4/letter/i/71c47a/32.png) [@IdahoMauleMan](https://boards.straightdope.com/u/IdahoMauleMan)\ **Post date:** [April 17, 2013, 12:15am UTC](https://boards.straightdope.com/t/why-is-insider-trading-illegal/655731/43 "2013-04-17T00:15:34Z")
> [@Hellestal](#): > > The public availability of this information is the silverest of platters I can think of. > > As far as I can tell (and I could easily be wrong), your point boils down to, “But people still have to _read_ this stuff!” Yes. Yes, they do. But reading isn’t hard. Or…decide to buy the stock. Or not. Or decide to believe what the company’s officers are saying. Or not. They also have those choices. They are completely empowered to do whatever they want. Whether they choose to read the information the company is providig or not, is also up to them. Isn’t freedom great? ---
**Author:** ![IdahoMauleMan](https://avatars.discourse-cdn.com/v4/letter/i/71c47a/32.png) [@IdahoMauleMan](https://boards.straightdope.com/u/IdahoMauleMan)\ **Post date:** [April 17, 2013, 12:17am UTC](https://boards.straightdope.com/t/why-is-insider-trading-illegal/655731/44 "2013-04-17T00:17:51Z")
> [@BrainGlutton](#): > > More, or simply better, yes. That **will** stop them. Or, you could stop yourself. Or empower yourself to invest. It would be completely your choice. Why are you putting your faith in government officials and regulation to “stop” them? Or you? Why don’t you put faith in yourself, instead? ---
**Author:** ![BrainGlutton](https://avatars.discourse-cdn.com/v4/letter/b/82dd89/32.png) [@BrainGlutton](https://boards.straightdope.com/u/BrainGlutton)\ **Post date:** [April 17, 2013, 1:39am UTC](https://boards.straightdope.com/t/why-is-insider-trading-illegal/655731/45 "2013-04-17T01:39:08Z")
> [@IdahoMauleMan](#): > > Or, you could stop yourself. Or empower yourself to invest. It would be completely your choice. I am **not** empowered to invest in the same way as the guys with inside info are. Or, yes, I am, but only in the sense that I am empowered to sit down at a roulette table in Vegas. ---
**Author:** ![IdahoMauleMan](https://avatars.discourse-cdn.com/v4/letter/i/71c47a/32.png) [@IdahoMauleMan](https://boards.straightdope.com/u/IdahoMauleMan)\ **Post date:** [April 17, 2013, 9:54am UTC](https://boards.straightdope.com/t/why-is-insider-trading-illegal/655731/46 "2013-04-17T09:54:54Z")
> [@BrainGlutton](#): > > I am **not** empowered to invest in the same way as the guys with inside info are. Or, yes, I am, but only in the sense that I am empowered to sit down at a roulette table in Vegas. Sure you are. You have 100% control over your decision to invest, or not invest, in those companies. Nobody is forcing you to do anything. If it is to yours and the companies’ mutual advantage to reach an agreement to invest your money in the company, you should do so. If you don’t believe it is, you should not. You clearly have made a choice _not_ to sit down at a roulette table in Las Vegas. At least, with the majority of your investment capital. Good for you! Don’t you see? You have already empowered yourself and had influence over the [BrainGlutton / Roulette] relationship with your choice. If that relationship is to change in the future, something in the [BrainGlutton / Roulette] relationship must change. Either the Roulette provider must alter their position to satisfy your needs, or you will change your risk/reward assessment and agree to participate. Perhaps it will be a combination of both. No new “Roulette” laws are needed, with new regulatory authorities or enforcement arms. If it is to your mutual advantage you will reach an agreement, otherwise things will stay the same as they are today. Isn’t freedom great? ---
**Author:** ![msmith537](https://avatars.discourse-cdn.com/v4/letter/m/d9b06d/32.png) [@msmith537](https://boards.straightdope.com/u/msmith537)\ **Post date:** [April 17, 2013, 12:12pm UTC](https://boards.straightdope.com/t/why-is-insider-trading-illegal/655731/47 "2013-04-17T12:12:42Z")
> [@IdahoMauleMan](#): > > Ah, yes. What we need is _more_ government oversight, not less. More enforcement authority. More rules. That will stop them. > > Buying or selling shares in a company is a purely voluntary activity, with incentiveson both sides to engage in honest activity. Neither side is being forced to do anything. Nobody is forcing you to buy stock in any company that you don’t trust. > > If you can’t honestly see the difference between that and a purely involuntary activity like murder, God help you. What is this? More Libertarian nonsense? Part of being able to “trust” a company is the knowledge that there are very specific rules under which they are allowed to operate and report on their profitability. As Enron, Madoff and the 2008 financial crisis showed us, companies often dont have an incentive to engage in honest activity. They have an incentive to engage in short term profits. > [@IdahoMauleMan](#): > > Isn’t freedom great? “Caveat emptor” is not the same thing as “freedom”. ---
**Author:** ![Grey](https://avatars.discourse-cdn.com/v4/letter/g/b782af/32.png) [@Grey](https://boards.straightdope.com/u/Grey)\ **Post date:** [April 17, 2013, 12:23pm UTC](https://boards.straightdope.com/t/why-is-insider-trading-illegal/655731/48 "2013-04-17T12:23:58Z")
Of course in the roulette example the rules are fixed by probability. The information flow is symmetrical between the house and the gambler. You both possess exactly the same level of information on the various possible outcomes. Unless someone cheats of course. But at that point the information available to the two parties is asymmetric. Since company performance isn’t perfectly characterized and company officers do have more information available to them than the general public rules are put in place to better even out the information symmetry. ---
**Author:** ![Cheesesteak](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/cheesesteak/32/3694_2.png) [@Cheesesteak](https://boards.straightdope.com/u/Cheesesteak)\ **Post date:** [April 17, 2013, 12:31pm UTC](https://boards.straightdope.com/t/why-is-insider-trading-illegal/655731/49 "2013-04-17T12:31:08Z")
> [@IdahoMauleMan](#): > > No new “Roulette” laws are needed, with new regulatory authorities or enforcement arms. So, do you like current gaming laws that ensure the casino runs a fair game where all parties have access to accurate information regarding the odds and payouts? Or, is it your position that casinos should be allowed to rig the game and it’s on the “free market” to work to keep the game sort of fair-ish. ---
**Author:** ![clairobscur](https://avatars.discourse-cdn.com/v4/letter/c/839c29/32.png) [@clairobscur](https://boards.straightdope.com/u/clairobscur)\ **Post date:** [April 17, 2013, 12:33pm UTC](https://boards.straightdope.com/t/why-is-insider-trading-illegal/655731/50 "2013-04-17T12:33:34Z")
> [@IdahoMauleMan](#): > > Or, you could stop yourself. Or empower yourself to invest. It would be completely your choice. > > Why are you putting your faith in government officials and regulation to “stop” them? Or you? Why don’t you put faith in yourself, instead? As a previous poster mentioned, you seem to have no clue about what raw data would look like. And regardless how much faith you have in yourself and good you are at it, there will be plenty of people who will know before you. The accountant at the end of his day’s work will know before you. The officer who decided to sign a contract will know even before any data exists. They’ll be the ones making money. Not you, self-empowered or not. ETA : I’ll put it in another way. If you have stocks, you a co-owner of the company. Insiders are, sort of, your employees. Does it still seem OK to you that these people working for you are the one filling their pockets because they have informations before yourself? ---
**Author:** ![smiling\_bandit](https://avatars.discourse-cdn.com/v4/letter/s/e9a140/32.png) [@smiling\_bandit](https://boards.straightdope.com/u/smiling_bandit)\ **Post date:** [April 17, 2013, 1:58pm UTC](https://boards.straightdope.com/t/why-is-insider-trading-illegal/655731/51 "2013-04-17T13:58:26Z")
> [@Hellestal](#): > > The public availability of this information is the silverest of platters I can think of. > > As far as I can tell (and I could easily be wrong), your point boils down to, “But people still have to _read_ this stuff!” Yes. Yes, they do. But reading isn’t hard. WTF? Your previous post implied that companies were obligated to hand information over in a convenient package for everybody, which is neither the point nor the requirement. Companies can keep lots of things perfectly secret and often do so; officers and some lower-ranking employees are not permitted to trade on that information. Nothing more or less. In practice, the laws frequently mean they plan trades well in advance and everyone knows when they’ll occur, and these go off automatically. But there’s no requirement that companies have to tell everything publicly, and no requirement that this information would be conveniently available for everyone, which is what you posted about. ---
**Author:** ![Really\_Not\_All\_That\_Bright](https://avatars.discourse-cdn.com/v4/letter/r/e8c25b/32.png) [@Really\_Not\_All\_That\_Bright](https://boards.straightdope.com/u/Really_Not_All_That_Bright)\ **Post date:** [April 17, 2013, 2:45pm UTC](https://boards.straightdope.com/t/why-is-insider-trading-illegal/655731/52 "2013-04-17T14:45:10Z")
**sb** , have you ever read an SEC filing? Not that anybody ever does, but they are right there for you to peruse should you wish to. ---
**Author:** ![Gyrate](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/gyrate/32/3588_2.png) [@Gyrate](https://boards.straightdope.com/u/Gyrate)\ **Post date:** [April 17, 2013, 2:55pm UTC](https://boards.straightdope.com/t/why-is-insider-trading-illegal/655731/53 "2013-04-17T14:55:48Z")
Insider trading is inequality of information. How well did that work out for CDOs? And that’s why insider trading is bad. ---
**Author:** ![msmith537](https://avatars.discourse-cdn.com/v4/letter/m/d9b06d/32.png) [@msmith537](https://boards.straightdope.com/u/msmith537)\ **Post date:** [April 17, 2013, 2:57pm UTC](https://boards.straightdope.com/t/why-is-insider-trading-illegal/655731/54 "2013-04-17T14:57:26Z")
> [@Grey](#): > > Of course in the roulette example the rules are fixed by probability. The information flow is symmetrical between the house and the gambler. You both possess exactly the same level of information on the various possible outcomes. > > Unless someone cheats of course. But at that point the information available to the two parties is asymmetric. > > Since company performance isn’t perfectly characterized and company officers do have more information available to them than the general public rules are put in place to better even out the information symmetry. This is an important point. Whether you choose to sit or not sit at the roulette table is based on your assessment of risk. IOW, the probably of winning. If the house cheats with a rigged table, your assessment would be based on an underlying information that has been conceiled from you. If you couldn’t make an honest assessment of your chances of winning, the only people who would play would be fools and idiots. That’s not what we want from our financial system. ---
**Author:** ![smiling\_bandit](https://avatars.discourse-cdn.com/v4/letter/s/e9a140/32.png) [@smiling\_bandit](https://boards.straightdope.com/u/smiling_bandit)\ **Post date:** [April 17, 2013, 3:20pm UTC](https://boards.straightdope.com/t/why-is-insider-trading-illegal/655731/55 "2013-04-17T15:20:05Z")
> [@Really\_Not\_All\_That\_Bright](#): > > **sb** , have you ever read an SEC filing? Not that anybody ever does, but they are right there for you to peruse should you wish to. Not the same. Annual filings are required for some specific information, but companies are _expected_ to keep their plans secret in ways that can (and do) affected insider trading. The two issues have nothing in common. Let me give you examples that may clarify what I mean. Samsung has certain financial information is has to reveal to the SEC and everyone else. Hypothetically, corporate officers could violate insider trading laws by dumping stock right before the reveal of very bad information in said filing. But that’s only a single, specific instance of violations of trading laws. Let us say that all the marketing and tech departments came up with is the Terribly Awful phone, and are pretty sure that Apple is going to release the iAwesome 6000 soon. Samsung does not (and won’t) reveal what’s the exact specs on the new Terribly Awful device are. Apple isn’t going to reveal the details on the iAwesome until it’s very close to release. But, if Samsung insiders dump stock just before the information is made public, they’ll be in serious trouble. In neither case does either company _have_ to say what their new device is, or what their sales projections are. They can sit on that until the sun dies. They don’t have to reveal what they actually sold, either. In fact, as long as they aren’t manipulating their stock value, the responsible parties can probably buy and sell with reasonable freedom. ---
**Author:** ![Really\_Not\_All\_That\_Bright](https://avatars.discourse-cdn.com/v4/letter/r/e8c25b/32.png) [@Really\_Not\_All\_That\_Bright](https://boards.straightdope.com/u/Really_Not_All_That_Bright)\ **Post date:** [April 17, 2013, 4:43pm UTC](https://boards.straightdope.com/t/why-is-insider-trading-illegal/655731/56 "2013-04-17T16:43:47Z")
> [@smiling\_bandit](#): > > Samsung has certain financial information is has to reveal to the SEC and everyone else. Hypothetically, corporate officers could violate insider trading laws by dumping stock right before the reveal of very bad information in said filing. But that’s only a single, specific instance of violations of trading laws. > > Let us say that all the marketing and tech departments came up with is the Terribly Awful phone, and are pretty sure that Apple is going to release the iAwesome 6000 soon. Samsung does not (and won’t) reveal what’s the exact specs on the new Terribly Awful device are. Apple isn’t going to reveal the details on the iAwesome until it’s very close to release. But, if Samsung insiders dump stock just before the information is made public, they’ll be in serious trouble. In neither case does either company _have_ to say what their new device is, or what their sales projections are. They can sit on that until the sun dies. They don’t have to reveal what they actually sold, either. In fact, as long as they aren’t manipulating their stock value, the responsible parties can probably buy and sell with reasonable freedom. That’s not how it works at all. Insider trading laws bar actions based on any information that is material to a security’s value and not yet public, not just stuff that has to appear in SEC filings. ---
**Author:** ![Hellestal](https://avatars.discourse-cdn.com/v4/letter/h/3ab097/32.png) [@Hellestal](https://boards.straightdope.com/u/Hellestal)\ **Post date:** [April 17, 2013, 10:09pm UTC](https://boards.straightdope.com/t/why-is-insider-trading-illegal/655731/57 "2013-04-17T22:09:57Z")
> [@smiling\_bandit](#): > > WTF? Your previous post implied that companies were obligated to hand information over in a convenient package for everybody, which is neither the point nor the requirement. Sometimes what you choose to infer is very different from what other people imply. Sometimes what you choose to infer is very different from what is literally written on your screen. What I said was that companies have an obligation to make information available. To quote myself: “Traders all have access to accurate information.” I said traders _have access_ to information, not that they get a hundred-thousand page FedEx complete with little pictures and charts and spreadsheets telling when every employee takes their toilet break. The requirements for public companies is that they release information, and that the information released is accurate. Anything else you are choosing to infer is extraneous. > [@smiling\_bandit](#): > > Companies can keep lots of things perfectly secret and often do so; officers and some lower-ranking employees are not permitted to trade on that information. I never said that companies couldn’t keep some secrets. To quote myself again: “if we insist that absolutely everybody must pay a large price up front to inform themselves on even the most basic issues, then you automatically exclude some people from the market.” I explicitly said _the most basic issues_, not every secret hidden under every rock. It is extremely expensive to do a competent independent audit of a multinational corporation with revenues larger than some small countries. It would be a waste of time for all investors to do such things, so that doesn’t happen. The information is made available. > [@smiling\_bandit](#): > > But there’s no requirement that companies have to tell everything publicly, and no requirement that this information would be conveniently available for everyone, which is what you posted about. I never said there was a requirement to “tell everything publicly”. The word “everything” never shows up in my post. Nor do I use related words like “all information”, or “complete availability”, or anything along those lines. (The information that actually is released, however, is definitely conveniently available for everyone.) If anything is still confusing in my post, you can ask and I’ll happily answer. But I’d strongly recommend not making hasty assertions to me about all of these things that I “implied”, because I remember writing my post, and I know what implications are actually intended to be there. ---
**Author:** ![Mosier](https://avatars.discourse-cdn.com/v4/letter/m/7ea924/32.png) [@Mosier](https://boards.straightdope.com/u/Mosier)\ **Post date:** [April 18, 2013, 6:43am UTC](https://boards.straightdope.com/t/why-is-insider-trading-illegal/655731/58 "2013-04-18T06:43:25Z")
> [@IdahoMauleMan](#): > > That’s why they have every incentive not to lie to you. You’d be correct, if insider trading weren’t rampant literally everywhere it was legal. You’re arguing against reality. > [@](#): > > And for you, to ensure that you have confidence in the information at hand before you make that decision. Part (all) of that confidence comes from the power government has to smack the shit out of the cheaters. > [@](#): > > That is why the law isn’t needed. Yes it is. So there. ---
**Author:** ![IdahoMauleMan](https://avatars.discourse-cdn.com/v4/letter/i/71c47a/32.png) [@IdahoMauleMan](https://boards.straightdope.com/u/IdahoMauleMan)\ **Post date:** [April 18, 2013, 7:19pm UTC](https://boards.straightdope.com/t/why-is-insider-trading-illegal/655731/59 "2013-04-18T19:19:32Z")
> [@msmith537](#): > > What is this? More Libertarian nonsense? > > Part of being able to “trust” a company is the knowledge that there are very specific rules under which they are allowed to operate and report on their profitability. As Enron, Madoff and the 2008 financial crisis showed us, companies often dont have an incentive to engage in honest activity. They have an incentive to engage in short term profits. > > “Caveat emptor” is not the same thing as “freedom”. Of course it is. The point you keep missing is that you are relying on a government regulatory agency to define “trust” for you, rather than setting the standard yourself. If you don’t “trust” that the roulette wheel is operatiing correctly, or you don’t “trust” that the profit figures are correct, DONT INVEST. That’s the Libertarian nonsense called freedom. Investors “trusted” that the Enron figures and Madoff returns were legitimate, because they were supposedly blessed by the SEC. They “trusted” the SEC. If they had “trusted” themselves to believe what the WSJ reporters were saying about Enron, they would enjoyed a different outcome. I’m sorry you are so afraid of yourself, and your own judgment, that you are willing to sign over your rights of choice to incompetent bureaucrats, who have the force of the gun to tell you what you can and cannot do. You have my condolences. ---
**Author:** ![IdahoMauleMan](https://avatars.discourse-cdn.com/v4/letter/i/71c47a/32.png) [@IdahoMauleMan](https://boards.straightdope.com/u/IdahoMauleMan)\ **Post date:** [April 18, 2013, 7:32pm UTC](https://boards.straightdope.com/t/why-is-insider-trading-illegal/655731/60 "2013-04-18T19:32:39Z")
> [@Mosier](#): > > You’d be correct, if insider trading weren’t rampant literally everywhere it was legal. You’re arguing against reality. > > Part (all) of that confidence comes from the power government has to smack the shit out of the cheaters. > > Yes it is. So there. I’ll tell you what. I’d like to make you an offer to conduct an experiment. It will be fun, and in the end you should be $100 richer. For an hours’ work. I’ll spot you 5 $20 bills and 5 safety pins. I would like you to pin them to your shirt. Then, I would like you and I to come to mutual agreement on the worst, most dangerous neighborhood somewhere conveniently located near you. Gangs, drugs, violence, whatever. A history of violent street crime will be helpful to the experiment. Even more helpful will be if you are of a different racial background than the majority of the neighborhood citizens. Then, at about 1am on a Saturday night, I want you to walk down a busy street with the $20 bills on your shirt, singing songs loudly, screaming and generally drawing attention to yourself. You must be completely unarmed. Use some racial epithets relevant to the local populace. Get as many eyeballs on you as possible. Then, after an hour, simply go home and put the $20 bills in your wallet. Deal? After all, the government will “smack the shit” out of anybody who interferes with you, correct? If you don’t want to take me up on my deal, can you explain why not? Can you explain why you are making the choice that you are? Thanks in advance. [Previous page](https://boards.straightdope.com/t/why-is-insider-trading-illegal/655731.md?page=2) [Next page](https://boards.straightdope.com/t/why-is-insider-trading-illegal/655731.md?page=4)