Insider trading involves purchasing or selling a publicly traded business entity’s stock, mainly by individuals, including workers with non-public, material databases regarding a firm’s securities. Insider trading is illegal since an employee shares price-associated sensitive information with outsiders (entrepreneurs), resulting in an explicit violation of fiduciary duty. In addition, unlawful insider trading adversely impacts business and society (Augustin et al., 2019). Several capitalists typically sell their shares to avoid loss and make profits. As a result, increased artificial demand for securities leads to higher stock costs, making other public investors make substantial losses. Therefore, illegal insider trading in business causes unfair play as there is no transparent demand and supply of stock, driving an unhealthy capital market.
A specific regulation deployed in prosecuting the violators is the United States insider trading policy. For example, section 16 of the 2013 insider trading law allows government officials to disgorge any profits acquired by insider traders (Augustin et al., 2019). The case I selected is between the Securities and Exchange Commission (SEC) vs. Jon Aronson and Elliot Aronson, and the link for the matter is https://www.sec.gov/litigation/litreleases/2020/lr24742.htm. The violation committed by the parties, including Elliet Aronson (father) and Jon Aronson (son), was the antifraud provision of section 10(b) of the 1934 SEC policy (US Securities and Exchange Commission, 2020). Jon Aronson, a worker at the legal division of an American International Group, deployed a confidential database concerning an upcoming acquisition of trade securities by informing his father about the issue, and they were charged with insider trading. The breach significantly harmed Validus Holdings, an insurance firm that the AIG management was planning on acquiring.
The ethical framework I observed to have been followed by Jon Aronson and Elliet in committing unlawful conduct was respect for autonomy. The violators can make their decisions without consulting third parties while selling company securities. The violators agreed to breach the antifraud provision, and the penalty levied against them was $20,310 (US Securities and Exchange Commission, 2020). I believe the case resolution was just, even though the matter awaits the court judges’ decision since most insider traders continue to harm other business entities and public investors. My thought regarding the topic is that Jon and Elliot Aronson were manipulative and continued damaging businesses, and all inside traders must be jailed. In conclusion, illegal insider trading can make more profitable companies not acquire other firms, resulting in increased stock prices.
References
Augustin, P., Brenner, M., & Subrahmanyam, M. G. (2019). Informed options trading before takeover announcements: Insider trading?Management Science, 65(12), 5697-5720. Web.
US Securities and Exchange Commission. (2020). SEC charges a former legal department employee and his father with insider trading. Web.