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Inside insider trading

Steinberg, center, exits federal court with attorney Barry Berke, right, in New York.

Steinberg, center, exits federal court with attorney Barry Berke, right, in New York.

Nicole Gordon, Author

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NEW YORK- SAC Capital Advisors, a hedge fund group based in Stamford, Conn., will resume public trading on Jan. 1, 2018, after a trading ban resulting from a 2013 conviction for insider trading. By April 2013, the FBI had made 70 arrests on insider trading at SAC in five years. Of those arrested, eight now former employees were indicted by the U.S. Department of Justice and six pleaded guilty.

Although insider trading might be considered immoral, it shouldn’t be illegal. Trading on private information is victimless and can actually help the market in the long run.

In November of 2013, SAC pleaded guilty to all counts of insider trading and forfeited $1.8 billion in penalties, said the New York Times. The conviction forced the company to cease to work with outside investors and are currently only trading Cohen’s fortune.

According to USA Today, Michael Steinberg, a former portfolio manager and senior member at SAC, allegedly received tips from SAC analyst Jon Horvath about information on Dell and Nvidia. He was indicted on four counts of securities fraud and one count of conspiracy and faced up to 20 years on each count. Steinberg pleaded not guilty and his bail was set at $3 million. The trial ended in favor of the U.S., and Steinberg was sentenced to three and a half years in prison.

Insider trading is a victimless crime. According to CNBC, Steinberg’s trades didn’t make any Dell or Nvidia shareholders worse off, and the investors who bought the shares on the day Steinberg was selling would have been in the exact same position whether or not Steinberg had the information and traded on it.

Making insider trading illegal only delays the eventual shifts in stock prices that would happen anyway. Steinberg actually helped early investors because they bought at a slightly better price after the his trades pushed the stock in the same direction as when the earnings became public.

There is no law in the U.S. that specifically makes insider trading illegal. Instead, the criminality of the act has been determined through interpretation of other laws, such as the Securities Exchange Act of 1934.

Some may say that insider trading is a threat to the integrity of the market because investors with confidential information can avoid potential losses and benefit from prospective gains, discouraging others from participating in trade. Although the insiders acquire information early, everything they know is integrated into the market when they buy and sell, which is reflected in the prices of stocks. This means that everyone eventually knows how the stocks are changing and they can make informed decisions based on the information.

In order to define the line between morally wrong and criminal actions, a law should be passed that legalizes the practice of insider trading. Unethical does not mean illegal, and the continued practice of arresting investors for insider trading wastes time, resources, and people that could be utilized for actual and more serious crimes.

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Inside insider trading