Comparative Business Ethics: Analysis of Insider Trading and Practices

This report provides an in-depth analysis of comparative business ethics, specifically focusing on insider trading practices and information gathering techniques within the stock market. It explores how individuals obtain and utilize non-public information for financial gain, examining the legal and ethical implications of such actions. The report delves into the concept of insider trading, its definition, and the various techniques employed to acquire confidential information. It also investigates the impact of convictions, such as that of Rajaratnam, on deterring future unethical behavior. The report further examines the role of regulations and compliance measures in preventing illegal insider trading and assesses whether stricter punishments would effectively curb these malpractices. The report also highlights the factors like how people gather this non-public information, what is insider trading and whether punishment of several individuals would stop this type of malpractices or not.

Running head: COMPARATIVE BUSINESS ETHICS
Comparative Business Ethics
Name of the Student
Name of the University
Author note

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Executive summary
The purpose of this report is to highlight a widely seen practice in the business in stock
market. This report sheds light on various issues like gathering non-public information of
organizations and using them how some people are earning a lot of money. In this process
legal or illegal that is the main purpose of this report. The report further sheds light on the
factors like insider trading practices and finally highlights whether the punishment of some
individuals related to this sort of crimes would prevent these types of malpractices or not.

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Table of Contents
Introduction................................................................................................................................3
Information gathering techniques..............................................................................................3
Insider trading............................................................................................................................4
Conviction of Rajaratnam deter other investors to gather non-public information...................7
Conclusion:................................................................................................................................9
References................................................................................................................................10

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Introduction
The purpose of this report is to shed light on the activities like inside treading and
various types of techniques for gathering non-public information of various organizations.
Using the information some officials take advantage and make huge profits by investing in
the stocks of those organizations (Nunan and Yenicioglu 2013). It is seen that some
organizations has earned up to 100,000 million dollars overnight by investing money based
on the non-public information they have gathered. These practices need to be stopped
immediately and the governmental authority needs to amend some rules and regulations to
prevent these types of activities. The report further highlights the factors like how people
gather this non-public information, what is insider trading and whether punishment of several
individuals would stop this type of malpractices or not.
Information gathering techniques
Gathering information and various techniques related to gathering information is a
common practice in Wall Street. Business personnel at Wall Street are actually in business
with intent to make money (Allan et al. 2012). The investors can fetch non-public
information from the chief financial officers of various organizations and that would be
something illegal. Else, the investor can develop his own prediction by piecing together small
parts of information from the suppliers of the organization and from the former workers of
the companies and from various other sources. It is seen that the prosecution of Rajaratnam
and some others gave a pause to the hedge funds regarding their techniques to gather
information. It can be said that insider trading is illegal, but in some cases, business
personnel gets greedy and they does take steps due to their egoism (Jayaraman 2012). In
some cases, these people lose control on their thinking capability and cannot decide what is
right and what is wrong. The egoists think that they should take decisions that would
maximize their interests and undoubtedly, the insider trading and other organized crime
would continue to grow and people would think and invent more clever paths to get away
with those criminal acts (Allan et al. 2012). To stop and reduce this kind of practices, the
government needs to implement strict asking the organizations to have robust compliance,
supervisory, surveillance and control measures in place to identify illegal insider trading.

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Insider trading
Insider trading can be referred to as a trading of public organization’s stock or other
bonds by people those have access to non-public information about those organizations. In
many nations around the world, kinds of trading based on insider information is illegal and
punishable offence, as they see it as an unfair act towards other individuals or investors who
does not have those kinds of information (Beneish, Press and Vargus 2012). On the other
hand, the investor, who has the insider information, can potentially make huge profits using
that information. It is a matter of fact that, insider trading increases the cost of capital for the
issuers of securities, and that decreases the economic growth (Allan et al. 2012). It is seen
that, some economists want that insider marketing should be legalized for the benefits of the
society. It is a matter of fact that, trading by some insiders, or employees is widely accepted
as long as does not rely on the material information not in the public domain. Various
jurisdictions require that such trading should be reported for the monitoring of the
transactions. In the land of United States and in many other nations trading conducted by
corporate organizations, key employees or stockholders must be reported to the regulator or
should be publicly disclosed within some day’s interval. In this type of cases, it is generally
seen that, the insiders need to file Form 4 under United States Security and Exchange
Commission while purchasing or selling stocks of their own organizations. The rules and
regulations governing insider trading are complicated and significantly vary from country to
country. Under one jurisdiction the definition of insider trading might be broad and may not
cover not only the insiders but also any individuals related to those insiders, for an example
the brokers, various associates and in some cases even family members. An individual who
gathers the non-public information and trades based on that information might get charged as
guilty (Augustin, Brenner and Subrahmanyam 2015).
In United States of America and some other nations amended rules stating the insider
traders criminals. In United States, Sections 16B and 10B of the Securities Exchange Act of
1934 is directly related to insider training. The congress of United States enacted this law
after the crash of stock market in the year of 1929. In United States, for optional reporting
purposes the corporate insiders are mostly defined as the company’s officers, beneficial
owners and directors in more than 10% of a class of the organization’s equity securities. The
trades made by these types of insiders within the organization’s own stock, based on the non-
public information, in most cases considered as fraudulent, as the insiders are violating the
judiciary duty that they owe to the stockholders (Allan et al. 2012). The corporate insider, by

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accepting employment has to undertake a legal obligation to the stockholders to put the
shareholder’s interests before their own, in some cases related to the corporation. Whenever
the insiders buy and sell based on the organization’s owned information, then they are
violating the obligations they have towards the stockholders. For n example, it can be said
that, illegal insider trading can occur if the chief executive officer of a company learns that
the organization would be taken over and then buys shares of that organization, knowing that
the prices of those shares would rise (Frey, Stemle and Glaznieks 2014). In America, insiders
are not only limited to corporate officials and major stockholders, where the illegal insider
trading is concerned but can involve any person who trades stocks based on material non-
public information violating duty of trust. For an example, it can be said that in various
jurisdiction, where a corporate insider give tips to a friend about non-public information, are
most likely to have an effect on the share price of the organization. The duty that the
corporate insiders owe towards the organizations is now imputed to the friend, and the friend
violates a duty to the organization if he trades based on the information he got.
In United States, not all the trading based on non-public information can be said is
illegal insider trading. As if a person in a public place overhears a conversation of a CEO of a
company about their recent profits, and the person invests money in the shares of that
organization, it would not be counted as an illegal act (Dierkes et al. 2013). It is a matter of
fact that punishment for insider training is dependent on various factors. There are three main
factors and those are, scope, evidence and gain. How many persons the wrongdoing is
affecting is the scope. How much profit did the insider make by the transaction can be said as
a gain (Frey, Stemle and Glaznieks 2014). Finally, anyone who is charged of insider trading
is innocent until the individual is proven guilty. In United States of America, in addition to
the civil penalties, the inside trader might also be a subject to criminal prosecution for
fraudulent activities where the SEC regulations are violated, the US Department of Justice
might call to conduct an independent investigation in parallel. Then if the department of
justice finds something to be concerned of, they might file criminal charges.
United State’s insider trading prohibitions are generally based on English and
American common law prohibitions against fraudulent activities. On the year of 1909, before
the passing of Securities Exchange Act, United State’s supreme court stated that a corporate
leader who bought any organization’s shares knowing that the prices would increase can be
accounted as fraudulent act as he did not disclose his inside information (Dierkes et al. 2013).
The section 15 of the Securities Act of 1933 contains prohibitions of fraud in the sale of

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securities, which were strengthened by Securities Exchange Act 1934. Again section 16B of
the Securities Exchange Act of 1934 forbids short swing profits made by the directors of
corporate of organizations, officers or any stockholders who owns more than 10% of the
shares of an organization (Frey, Stemle and Glaznieks 2014).
Thus, it can be said that insider trading is in general illegal but in some cases it can be seen as
legal dealings, although in most cases it is seen that various types of illegal activities are done
under the light of insider trading.
Conviction of Rajaratnam deter other investors to gather non-public information
From profound and decisive analysis of the case study, it can be stated that the
investigation and conviction of Rajaratnam would not deter the fund managers from sharing
non -public information. The strong reason that can be cited in this regard is that there have
been multiple numbers of trade frauds within the organizations that were not disclosed
properly due to lack of proper investigation. However, there has been proper understanding
of the cases where the trade frauds were addressed with proper business license. In fact, the
number of insider trade fraud has been rising in a rapid pace thus creating a hole within the
conviction process where the organizations are observed to have been losing the criteria of
being trusted in the international market. Moreover, there has been a continuous threat for the
organizations where they were highly threatened by continuous fraudulent activities in front
of the vigilance. As a matter of fact, this has been taken into consideration that in most of the
cases the basic idea remained persistent in terms of addressing to the frauds with proper
measure. Else, the investor can develop his own prediction by piecing together small parts of
information from the suppliers of the organization and from the former workers of the
companies and from various other sources. It is seen that the prosecution of Rajaratnam and
some others gave a pause to the hedge funds regarding their techniques to gather information.
It can be said that insider trading is illegal, but in some cases, business personnel gets greedy
and they does take steps due to their egoism (Jayaraman 2012). In some cases, these people
lose control on their thinking capability and cannot decide what is right and what is wrong
As a corrective measure, the insiders who are associated with accounting process
would try to investigate- within the organization; and shortlist the other frauds- major or
minor who have been turbulent in the money laundering process. Since there has been a
proper understanding of the process pertaining to the effective understanding that was highly
in the formation of the case would focus on the basic understanding of the huge concept

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within the society and the business market. In this case, the further investigation process
would be focusing on the actuality or genuineness of workers who are closely associated with
the accounts department. Two possible chances would create many opportunities for the fund
managers to look into the matter. First, the managers would create a trusted circle of the
employees. As a matter of fact, this would focus on the clear understanding of the process
pertaining to the effective consideration of the trusted circle. With the effective measure this
would focus on the actuality of how the trusted circle is addressed during post-trauma period.
Undoubted more stringent vigilance would be placed upon the entire case pertaining to the
effective measures to restrict further fraudulent activities. Since this has been taken in to
certain consideration that more stringent action is needed for the vigilance of the accounts
and the fund, the fund managers, according to my own view, would look forward to
recruiting fresh candidates. In order to influence upon the structure of infraction policies of
the organization the managers would focus on various angles. The multidimensional
approach to find out the basic understanding of the cases would be taken into certain
consideration. Infringement of law or the organizational agreement would purpose to the
service of transparent activity of the national law. The organizational policy would definitely
focus on the adherence to the national law without a single diversion. In this case, it can be
taken into certain consideration pertaining to the effective understanding of the policies
pertaining to the effective chance where in most of the cases, the law would be focused
through the eyes of organizational transparency. I do not think that it would not have the
possibility to deter any sort of infraction from being taken place. Since this would focus on
the actual understanding of the process pertaining to the effective chance where the law and
the organizational policies would create a stronger base for restricting and challenging further
fraudulent activities in relation with money, behaviour or other ethical activities, the fund
managers would incur more stringent policies, in association with, the newly formed body. In
this case, this would undoubtedly provide the organization with a clear scope to fight the
frauds who still exist without being recognized. Provision of corporate insider training would
focus on the effective understanding of the organizational policies where this would be
focusing on the actuality of the forces within the frame that is constructed in adherence to US
organizational law framework. However, the nature in the form of infraction would be
addressed since there is a sheer need to maintain a close observation and attention of the
surroundings. As a matter of fact, this would be targeting the basic understanding of the
policies with the effective nature where this would somehow address the greater number of
the law firms.

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Conclusion:
From the discussion cited above it can be stated that the organizational law is always
structured with the basic understanding of the policies in adherence to the national
framework. In this context, it has been taken into certain consideration pertaining to the
effective nature of the cases where the law is highly addressed by the stringent policies. With
the effective nature of the law, there has been a thorough understanding pertaining to the
effective nature of the organization pertaining to the methods to fight the frauds.

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References
Agrawal, A. and Cooper, T., 2015. Insider trading before accounting scandals. Journal of
Corporate Finance, 34, pp.169-190.
Allan, J., Croft, B., Moffat, A. and Sanderson, M., 2012, May. Frontiers, challenges, and
opportunities for information retrieval: Report from SWIRL 2012 the second strategic
workshop on information retrieval in Lorne. In ACM SIGIR Forum (Vol. 46, No. 1, pp. 2-32).
ACM.
Augustin, P., Brenner, M. and Subrahmanyam, M.G., 2015. Informed options trading prior to
M&A announcements: Insider trading?.
Beneish, M.D., Press, E. and Vargus, M.E., 2012. Insider trading and earnings management
in distressed firms. Contemporary Accounting Research, 29(1), pp.191-220.
Beneish, M.D., Press, E. and Vargus, M.E., 2012. Insider trading and earnings management
in distressed firms. Contemporary Accounting Research, 29(1), pp.191-220.
Dierkes, M., Erner, C., Langer, T. and Norden, L., 2013. Business credit information sharing
and default risk of private firms. Journal of Banking & Finance, 37(8), pp.2867-2878.
Frey, J.C., Stemle, E.W. and Glaznieks, A., 2014. Collecting language data of non-public
social media profiles. In Workshop Proceedings of the 12th Edition of the KONVENS
Conference (pp. 11-15).
Jayaraman, S., 2012. The effect of enforcement on timely loss recognition: Evidence from
insider trading laws. Journal of Accounting and Economics, 53(1), pp.77-97.

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Kim, S.H., 2012. The Last Temptation of Congress: Legislator Insider Trading and the
Fiduciary Norm Against Corruption. Cornell L. Rev., 98, p.845.
Nunan, D. and Yenicioglu, B., 2013. Informed, uninformed and participative consent in
social media research. International Journal of Market Research, 55(6), pp.791-808.