Ethical Issues in Business Finance

This assignment delves into the complex ethical landscape of business finance. It explores topics such as earnings management, white-collar crime, and the influence of political and social factors on ethical behavior within corporations. Students are encouraged to analyze case studies, research current events, and critically evaluate the role of ethics in ensuring responsible financial practices.

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Comparative business ethics & social Responsibility
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Executive summary
Over the past years, cases of senior executives and other individuals have been
reported to have engaged in various unethical business activities to earn money. Some of
these activities comprise of illegal practice of trading on the stock exchange through exposing
confidential information to gain personal advantage. A good example being the case at the
Galleon group. These paper will look at the issue of insider trading at the Galleon group. The
paper will explain what executives, regulators and investors can do to address the issue. It
will also explain the implications of sharing confidential material information and how it can
impact ones decision concerning how to trade a stock. The paper will also explain if the
secret investigation and conviction of Rajaratnam and other individuals in the galleon
network can discourage other fraud managers and investors from exposing confidential to the
public. At the end of the paper, a conclusion will be made concerning the implications of
insider trading, if the secrete investigation and conviction of Rajatnam and other managers
can discourage other people from engaging in similar activities and why information-
gathering techniques like Rajaratnm’s are common on Wall Street.

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Introduction
The issue of engaging in insider trading impacts not only organizations but also the
economic conditions of a country (Buzar, 2016). In most cases and just like in the case of
Galleon group, most of the people who engage in this unethical business activities do so in
order to attain personal advantages. The illegal trading of stock to gain personal advantage
through expose non-public information have significant impact to not only an organization
but also to economic condition of a countries. This means Regulators, executives and
investors should come up with strict measures to prevent such activities do not happen.
Over the past years, companies have been closing down because of being impacted by
insider trading. Those found guilty have also ended up serving jail terms and paying huge
fines (Jackson, 2012). This means confidential information is quite vital to an organization
and should always be safeguarded. In this case, regulators, investors and executive have a
role to play to ensure those who try to engage in this type of activities are challenged.
In most cases, the manner in which people who engage in insider trading are
investigated and convicted determines the manner in which other people who engage in such
activities will perceive the crime (James, 2011). Based on the case study, there are various
things which people can learn from the manner in which Rajaratnam was investigated and
convicted. Although regulators and other stake holders are trying to stop insider trading,
much need to be done to ensure the stock market is secure.

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Are information-gathering techniques like Rajaratnam’s common on Wall Street? If so, what
could regulators. Investors, and executives do to reduce the practice?
The information-gathering techniques like Rajaratbam’s are common on the Wall
Street in the fact that everyone wants to make money. Although insider trading is not legal,
people will still undertake it because they believe money is more important than what is right
or wrong (Aragon, 2011). The insider trading at the Galleon group case study brings up an
important point that the information which analysts in regards to funds and stock is quite
fundamental. This means these kind of practices are normal and even common on Wall
Street. One of the major reasons why these kind of information gathering techniques are
common on wall street is because of the several gains that agents, investors, and other players
get, by knowing the inside information, much before the public gets to know the information.
To reduce the practice, regulators, executives and investors should work together
(George & Pratt, 2012). Addressing the issue of inside trading is not an easy task because
people always feel they can outsmart the established measures. This means those who are
concerned with fighting against the issue should team up and assist each other where
possible. All players should ensure those who violate the rules are punished in a manner
which can make them change. If the only punished will be slaps on the wrist, other people are
going to be more willing to take chances on engaging in insider trading and other unethical
practices.
Regulators should always keep a close eye on the firms making a lot of money, ensure
there are open lines of communication for whistle blowers, and heavily prosecute the
offenders in a manner which can set an example to others. Keeping close eye to companies
making a lot of money will assist the regulators to determine if the company makes the
money in the right manner or not (Kisilowski, 2014). From this case study, Rajaratnam made

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a lot of money without considering business ethics. The action taken upon him can be said to
be light because based on the nature of crime committed, he could have been given
punishment that could make him learn from experience and also discourage other people who
may wish to engage in similar activities
To reduce Insider trading and similar crimes, regulators should set strict regulations
requiring all organizations to have full compliance, surveillance, supervisory, and control
measures in place to identify possible illegal trading (Moon, 2011). They should also guide
executives on coming with rules which can direct employees to do what is right. In some
cases, crimes such as inside trading happening because there are no proper rules and
guidelines which direct employees to behave ethically. Executives should liaise with
regulators in ensuring all staff members comply with established regulations. Generally
insider trading is illegal, and failing to comply with the established measures should lead to
the necessary legal actions.
Apart from punishing, regulators should also ensure those found guilty are taught
concerning the implications of engaging in unethical business practices (Buzar, 2016). These
can be through establishing training programs in companies, or in prisons to assist the
offenders to understand the importance of engaging in ethical and legal business practices.
These training programs should comprise of comprise of letting them know the implication of
these kind of practise like for example impact on economy, businesses, and so forth.
It is also advisable for regulators to expose people who engage in unethical business
activities to the public, stating how they were punished. This can assist in preventing these
kind of activities from happening (Kline, 2010). If for example Rajaratnam issue was
publicly exposed, other people who were engaging in such activities would learn a lesson and

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choose to do only what is right to earn money. The information exposed should comprise of
the crime committed and the fine or the jail term.
Investors should avoid investing their funds in firms whose integrity track records are
not good (Everton, 2011). They should play a role in ensuring the companies they choose to
invest their funds complies with all ethical requirements. Because Investors are important
stakeholders in companies, assisting to ensure full compliance to ethical requirements can
assist in reducing unethical practices because all companies wants to attract more investors
and retain the existing ones.
Investors should also come up with powerful data analysis tools to detect illegal or
unethical activities that happen in the stock markets. With the powerful data analysis tools,
they will be able to spot all suspicious activities when they occur (Greenberg, 2011).
Scrutinizing major activities in organizations such as mergers, acquisitions, and divestments
is also fundamental because it can assist them to identify if there are unusual practices which
can risk their funds.
Executives on the other hand have to be loyal to their staff members and ensure they
analyse their employee from time to time to identify their level of integrity. They should also
be careful when communicating with outsiders because they can influence the reputation of a
company especially when sensitive information is leaked (Leube, 2012). When engaging in
any form of communication with untrusted people, it is advisable to first identify their motive
and come up with best strategies of responding to their queries.
Executives can also control these kind of unethical activities from happening through
setting strict rules within organizations (Shiri, 2016). These rules should be aimed at ensuring
their firms have robust compliance with the ethical requirements. They should also ensure

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there is good surveillance, supervision and control measures to ensure illegal activities are
detected and addressed as early as possible.
What are the implications of sharing confidential material information? Is it something that
would affect your decision about how to trade a stock if you knew about it?
From the case study, Rajaratnam unethically collaborated with teams from other firms
to secretly discuss information concerning stocks that was supposed to remain confidential to
the concerned parties. Engaging in this kind of activity is wrong because secrets remains
important for the success of businesses (Hazels, 2015). Discussing information that has not
been released to the public may make stakeholders to develop negative attitude towards the
company especially when the information shared was subject to corrections.
Confidential information should not be released without the permission from all
parties (Tesfayohannes, 2010). In business sector, confidentiality is an inspiration that
embraces business techniques and secrets, as well as common understanding through
promoting self-belief among the parties. Any information that is termed as confidential
usually have great value to businesses and therefore if shared can lead to various
implications.
Sharing confidential material information risky and unethically right. The ethical
implication of engaging in this kind of fraud is that it leads to unfairness to other investors
(ElZein, 2013). It is also unethical because it involves getting money through illegal means.
The activity is risky because it has various consequences which can not only affect the person
involved but also other people.
The other implication of these practices is that it can make one to be in trouble with
many aspects including the law (Gaughan, 2011). For example, based on the case study,

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Rajaratan and his colleagues landed in trouble of serving jail term and even paying huge
amount of money as fine. Being jailed because of engaging in this type of activities also
makes one waste a lot of time which he/she would have used to do better things.
When a company insider shares a confidential material information with the wrong
people, the investor gets an unfair advantage (Geis, 2011). To illustrate, firms that trade
publicly on stocks exchanges have to openly unveil their quarterly financial statements at
designated and scheduled months and dates to the stock exchanges. Once the information is
publicly declared, it is becomes a level playing field for all the investors and the stock prices
can go up or down depending on this additional information.
Insider trading is illegal in the fact that it is unfair to the other parties in the trade
markets. In a market where insider trading takes place, companies and investors lose a lot in
terms of finances. As a result of this, they choose to utilize their money in doing other things
instead of investing where security of their funds is not guaranteed (Peterson, 2012).
Investment plays a key factor in determining the economic condition of a country and
therefore if little or no investment takes place a country maybe at the risk of experiencing
economic distress.
In some cases, engaging in this kind of business activities can make one to be banned
from the industry. One of the reasons why this action may be taken is because this kind of
activities have a significant impact to performance of organizations and in most cases may
make some of them to collapse (Harris, 2010). From the case study, some of the companies
where Rajaratnam worked collapsed because of being victims of insider trading. Closing
down of organizations may have serious impact to the country because it may lead to increase
in criminal cases because of unemployment, economic downfall among others.

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Sharing confidential information may lead to serious financial issues in companies.
The reason for this is because apart from profit generation, firms also require money in order
to operate (Dolgopolov, 2010). When this fraud happen, investors will also fear investing
with affected companies, where in some cases those who have already invested end up
pulling out their investments in fear of losing their money. This brings serious impact in the
companies which in some cases make them to close down.
From the case study, Rajaratnam was charged with different cases of fraud and
conspiracy. The fraud activities he committed had a significant impact to the thriving
company. It also impacted the stock market and financial condition of every person who was
involved in the conspiracy. From this scenario, it is evident that this kind of fraud has serious
implications to the offender, the market, and the economy at large.
This kind of information would dramatically impact my decision concerning how to
trade stock mainly because it is illegal and the justice system do not allow the legal rights to
do so. There are numerous implications of trading stock in an industry where these activities
are rampant and therefore if I was aware about it, the best option would be choosing not to
make any decision concerning the stock.
The reason why I would choose not to make any decision concerning trading a stock
is because insider trading risks investment and no one wants to be involved or invest in
companies or markets where security of finances is not guaranteed. Insider trading does not
give fairness to investors and therefore if one knows that such activities occur, then he/she
will not consider doing other things rather than trading a stock.

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Do you think the secret investigation and conviction of Rajaratnam and other people in the
Galleion network will deter other fund managers and investors from sharing non-public
information?
The manner in which law offenders are punished determines the chances of repeating
similar offences or other people committing similar crimes (Dugan, 2016). In situations
where the public is not allowed to know how offenders are punished, then people may fail to
understand the consequences of engaging in this kind of crimes. To avoid serious
misconducts like insider trading from happening, regulators should have nothing to hide
when investigating and convicting those found guilty. The process of undertaking
investigation and conviction should be aimed at punishing the offender and acting as a lesson
for those who may wish to engage in similar activities.
Secret investigation and conviction of Rajaratnam and other individuals in galleon
network will not deter other fraud managers and investors from sharing non-public
information because in the society there will be people who will always think they can
outsmart the system (Dhaoui, 2015). People will always engage in these kind of frauds
paying much attention of the benefits and not the repercussions. For example from the case
study, Rajaratnam was much on the gains than what he could suffer from the action, or how
the action would affect other people. Most people like Rajaratnam usually have the mind that
“I will not be caught.” This makes them to undertake the unlawful activities with the
mentality of attaining personal gains without thinking about the consequences.
Stopping this kind of fraud will be hard because people will always come with new
tactics. People who have high desires of becoming rich will always search for all means of
attaining money (Jolly, 2013). Once a particular control measure is established, they come up
with a new tactic to outsmart it. This means regulators, executives and investors should

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always be on watch out and come up with proper measures that can fully challenge those who
engage in such crimes.
The other reason which can make it hard for the technique used to investigate and
convict Rajaratnam to discourage other fund managers and investors from sharing non-public
information is that in some cases people feel that even if they attain a lot of money and go to
jail, at some point they shall come of the jail and still enjoy the money they attained (Zhou,
2014). To address this issue, investigations and conviction should be made in such a manner
that will make others to see the problem of engaging in illegal practices. For those found
guilty like Rajaratnam, investigations and conviction should never remain a secret. They
should be exposed to the public so as to know that there are consequences associated with the
practice.
For those found guilty, there should be a requirement to refund the illegally acquired
money and pay fine. This will assist in eliminating the mentality that even after serving the
jail term one will be released and still enjoy the money he/she acquired (Everton, 2011). The
fine should be huge enough so as to assist other people who might have the mentality of
engaging in similar practices to realize the consequences associated with it once caught.
Based on various aspects like the jail term, fine and other factors, Rajaratnam’s case
cannot play a role in discouraging other fund managers from practicing insider trading. The
only way of preventing such activities from happening is regulators, executives and investors
working together to educate employees about the repercussions of engaging in such kind of
frauds (Gaughan, 2011). Executives should also ensure employees are given better
compensation for the work they do so that they cannot find the reason of engaging in
activities which can have negative implications in their lives. Investigation, conviction and

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freeing of those found guilty is not a solution to the problem because even those who are
jailed and released repeat similar crimes.
Conclusion
In conclusion, information gathering techniques like Rajaratnman’s are common on
Wall Street because the aim of most people is to make money irrespective of whether the
situation is right or wrong. To avoid such frauds from happening, regulators must ensure
strict legal measures are established and the right actions are taken upon those who violate
them. Executives should also play a role through being loyal to their staff members. They
should be careful when communicating with outsiders and should always scrutinize the
people they hire to determine their integrity level. Investors should avoid investing their
funds in firms whose track record in terms of integrity is suspected.
There are various implications of sharing confidential material information. Some of
these implications comprise of wasting a lot of money in paying fines and a lot of time while
serving jail terms. Sharing confidential material information can also have serious impact on
economy and performance of companies. Engaging in such activities can also make one to
lose a job and be banned from the industry.
Secret investigation and conviction of Rajaratnam and other people at the Galleion
group will not discourage other fund managers and investors from sharing non-public
information because people will always think that they can outsmart the system. People will
also engage in such activities in order to get money without considering whether the activities
are right or wrong. It is important for regulators to ensure the manner in which such cases are
handled is made public. When dealing with this kind of crimes, it is also advisable to ensure
the punishment given is worth making other people who may wish to engage in such crimes
to learn a lesson.

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