Insider trading has plagued the stock market for decades now. Several convictions have occurred in regard to this law, but has that solved the issue? Is that enough to stop someone from taking the risk? Can the millions of people that invest in the stock market each year now feel like they are on an equal playing field as everyone? None of the answers to these questions are yes, because in recent years regulation and successful prosecution of this law has dwindled tremendously. A couple of years ago, two hedge fund managers were charged with insider trading after being accused of trading on advanced tips about company earnings. In the end, these two hedge fund managers had their charges dropped, which sets a very weak precedent now for this issue in the future. It certainly doesn't seem fair that hedge fund managers like this, with all of the resources at their disposal, can still take advantage of the system and uneven the fairness of the market for all of the other average joe traders out there. With this new precedent that has been set what would stop someone from taking the risk to insider trade? Seems to me like you have a 50/50 chance of getting your charges dropped, so how are we going to solve a problem when the risk isn't severe enough? In order to completely solve this issue; stronger enforcement of the law through investigation and court precedents, higher scrutiny of hedge fund managers and people who have large influences on the market, and implementation of increasingly higher penalties for insider trading all need to take place. These are multi-million dollar crimes that are being taken lighter and lighter as time goes by and that's not okay for the millions of people who are trying to invest in a "fair" stock market. 

One of the main issues holding back further enforcement of the insider trading laws in the USA is the precedents being set by recent court cases. According to James B. Stewart of the NY Times, "A little over a year ago, a controversial ruling by United States Court of Appeals for the Second Circuit cleared two hedge fund managers who had traded on advance tips about company earnings. The ruling has thrown many insider trading prosecutions into disarray, and dealt a serious blow to the crackdown on insider trading by Preet Bharara, the United States attorney in Manhattan. Judges have dismissed insider trading charges against six people and vacated a dozen convictions from his office alone. Other investigations have languished or been closed. The few remaining cases are on appeal or under a cloud." (Qtd. Stewart) Due to this specific court case with the two hedge fund managers, the precedent of convicting the people with insider trading charges has been set very weakly. Most would assume that this really shouldn't be that big of a deal since everyone is entitled to separate cases, but in reality the justice system in this country bases many decisions off of previous precedents set. Unfortunately, once a precedent is set there is not much you can do to really change it besides focusing on each case more individually and I believe that's one of the key ways in shifting back to trying to prevent insider trading. I think we need to make sure that there is strict investigation of each individual case, leading to the courts focusing more on that specific investigation for each case rather than some of the weak precedents that have recently been set. 

The counterargument to this viewpoint would be that since the weak precedent has already been set, then it's really not worth the time, effort, and money to battle for a lost cause. Stanislav Dolgopolov states in his article "Insider Trading" that, "Empirical research generally supports skepticism that regulation of insider trading has been effective in either the United States or internationally." That's fine to give up on something if you think it isn't worth it, but to me that just seems like an easy cop out. Why even have a police force and laws then under that frame of mind, because it's still very difficult to regulate the other laws as well? I think the main thing that is forgotten when people argue that it's not worth it to regulate insider trading is that much of the time these are major multimillion dollar crimes we are talking about that can seriously effect the honest trader's livelihoods. As Matthew Taibbi discusses in his book "The Divide," is it really okay that low level crimes amongst the poor are prosecuted beyond belief and yet there seems to be a continuing leniency for these major crimes like insider trading amongst higher up people. At the end of the day, we can either roll over and just accept that regulation of insider trading has gone down hill to where it can't get back up or we can try to change the way in which it is enforced both from a police and court perspective.

Another big component in trying to fix the issue of Insider Trading is focusing more of the scrutiny on the executive investors such as hedge fund managers. Now it would seem that it's not fair to investigate one type of investor more than another, but when it comes to trying to keep a fair stock market it simply comes down to numbers. The executive investors are making million dollar plus trades comparatively to someone like me who trades in the thousands, which isn't going to make anywhere near the same impact on the stock market as the million dollar investments. For years now we have known about various forms of fraud amongst high up investors and bankers and since there can be a weak precedent for convicting people of insider trading set in court, shouldn't there be a precedence that many of the people in these hedge fund type positions are corrupt and deserve extra scrutiny? From this perspective it's not even just about having a fair stock market, but it's also about the people investing their money with these investors that could possibly be trading illegally through insider trading. It's almost a double whammy in that when these higher ups insider trade, the people who invest with them have not been treated fairly and then the innocent people investing at home now are investing in a less honest and fair stock market. It's not necessarily that a crime should be deemed worse by the amount of money involved, but in this case it's really more that the more money involved, the higher number of people are being effected by it. According to sec.gov, in 2014 the number of insider trading convictions was split pretty evenly between regular individual traders and larger hedge funds/companies. Now obviously maybe this crime is split evenly amongst those two investor demographics, but certainly I would think it's much more necessary to focus investigation and prosecution more solely towards the larger investors and not waste half of the time, money, and effort available to pursue just average joe individual traders. 

The opposition's perspective here is that insider trading could actually make the stock market more fair for individual traders, since they are already behind on information comparatively to a hedge fund manager or some other form of higher up trader. According to Doug Bandow's opinion utilized in Christopher Matthew's article "Why Is Insider Trading Even Illegal?" he states that "the goal of insider trading laws, which is to promote a fair stock market, is misguided. Every day stock market participants trade securities based on incomplete information. In nearly every transaction, one party has superior information than the other. Furthermore, it's only possible to enforce insider trading laws when a trader decides to buy or sell a security. But the decision to not trade a security is sometimes equally important. If your inside source at a company whose stock you don't own gives you a peak at a financial statement, and it's disappointing, you will decide not to buy that security. And that decision is illegal, but can never be proven." Now I agree that it is impossible to prove when someone decides not to buy a stock based off of insider trading, but that's not what is going to affect the stock market comparatively to when someone does make a trade based off of insider information. I think it is fair to assume that insider trading could theoretically level the playing field between the average trader and a higher up hedge fund manager, but in reality as we've seen over time, the higher up investors end up cheating the system just as much if not more, unleveling the playing field even more. In my opinion, the main problem with insider trading is when multimillion dollar trades are made based off of insider information, since that is what will really make the stock market unfair and that simply will not be solved at all if we just give in and legalize it. Ultimately, the root of the problem is the higher ups taking advantage of insider trading and that's why increased investigation and scrutiny needs to take place for the people in that line of work.

With the way the recent court decisions have been going, with many of the higher ups getting their insider trading charges dropped, is there really that much risk for someone to insider trade in the first place? In the last few years it would seem that someone charged with insider trading has a 50/50 chance of getting their charges dropped if not higher. On top of that, according to sec.gov, "The maximum prison sentence for an insider trading violation is now 20 years. The maximum criminal fine for individuals is now $5,000,000, and the maximum fine for non-natural persons (such as an entity whose securities are publicly traded) is now $25,000,000." To me, the risk doesn't seem overly high in comparison to what you'd think. If you combine the odds of actually getting convicted in the first place with the new recent precedents set in court and the punishment of most likely an average of about 5-10 years in prison and a couple of million dollars to equate the overall risk factor for someone like a hedge fund manager, the risk wouldn't seem overly high. When you're dealing with millions and millions of dollars worth of crimes, a couple of millions of dollars in fines is nothing to them. The only possible risk factor that would even remotely have someone think twice in these higher up positions is the prison time, but even then I doubt they sweat it since they know they have millions to spend on lawyers to get their sentences down. Ultimately, it would seem that the punishments for breaking the insider trading law would really only scare/seriously affect an individual average joe trader who can't afford the fines and top lawyer team to help them. This just seems like another case of where the law doesn't seem to harm the people that really need to be harmed by it as much as it should and that's why the punishment for insider trading needs to much more severe for the higher ups in the financial industry.

I think one of the main reasons there is even an opposition to having a more severe punishment for insider trading committed by high up investors is that they don't realize the severity of the crime. One would argue that it's not that big of a deal to trade on inside information because as Stanislav Dolgopolov states in his article "Insider Trading" that, the advantage of insider trading comparatively over already publicly disclosed information may not be that great. Regardless, there is still clearly an advantage otherwise it wouldn't be considered an advantage and cheating. More or less, these people who trade on inside information are cheating to steal millions of dollars. Compare that to someone who robs a bank or a store and steals thousands of dollars, obviously minus the violence, insider trading is a much more serious crime in fiscal terms yet there is doubt over the severity of this crime, but no one would doubt the severity of robbery. I think when there are very serious crimes like this that people don't quite understand, since it's very sophisticated, people tend to demean the seriousness of it, which takes away from trying to regulate it. On paper it just looks like someone had a bit of a tip that they profited on, but in reality, they cheated to make potentially millions of dollars of profit as well as take away from the fairness of the stock market for the other millions of people that invest in it.

Another big aspect of this issue is that people tend to not view the consequences on a human level. It's easy to just see the numbers and the large headline case every now and then when it pertains to an insider trading, but there's a much more human aspect to this. For example, I'm someone who trades stocks daily with a minimal amount of money at best in comparison to larger executive traders and if I'm already behind the eight ball in terms of initial capital plus less knowledge and resources it would seem totally unfair that these executives then take advantage of insider information as well. The balance of fairness just simply doesn't exist when it comes to the stock market with higher up people profiting immensely from insider information. That just simply discourages individual day traders like myself when you know how far behind you are in terms of advantages of others. Obviously, in anything someone is going to have an advantage in terms of ability or knowledge than someone else but when that ability or knowledge is gained through cheating then how can people not want to deem that illegal and strongly enforce it? To me, this is very similar to steroids in sports such as baseball. A player like Barry Bonds is already a better hitter than most other players and then throw on top of that his use of performance enhancing drugs then every other player who is training fairly is at a complete disadvantage. Very similarly to how people argue that insider trading isn't really that big of a deal, it's been argued that steroid use by baseball players really isn't that big of a deal since so many people do it or whatever other reason. Well that's fine to think of it that way but what about the innocent players who have paychecks on the line? Millions of dollars being taken advantage of just like in the stock market with insider trading. If steroids can be deemed illegal in sports like baseball, then the same ideals should be applied to insider trading, since the consequences are so similar.

I think the real question when it comes to trying to further enforce insider trading laws is why? What is the point in having this be illegal? Who are the victims at stake and does that really matter? Well as I've mapped out in this essay, there are many more factors at play than simply what's just on the surface. Insider trading is a very complicated issue, with probably no one true solution, but with stronger enforcement of the law through investigation and court precedents, higher scrutiny of hedge fund managers and people who have large influences on the market, and implementation of increasingly higher penalties then I think we can move closer to solving the issue at the least. At the end of the day, millions of people are affected plus millions of dollars are criminally earned through this legal issue and that's simply just not okay.

Matt: I had a hard time getting through a lot of your paper because your paragraphs were really long and you don't really engage with your sources fully--you don't even cite them in text. You were supposed to have 10 sources cited in the course of your paper but a lot of it is you just using your knowledge (however well informed) to give me scenarios and explanations. Which is fine if you've already established your research earlier in the paper. I think a bit of this needs to be broken down--paragraphs need to be shorter and more accessible--I honestly think this will do wonders for your paper. C+

