Insider Trading

1
Insider Trading

• Its more than Martha Stewart!

And Enron too!
2
What is insider trading?

• There are many different definitions out there of
  insider trading. The most encompassing one I
  have found is
• The illegal buying or selling of securities on
  the basis of information that is generally
  unavailable to the public.
• The question What is insider trading? was
  asked a lot in the 1970s and 1980s.
• In the 1980s exposes were written to reveal
  corporations and employees guilty of insider
  trading to the public.
• Great Britain also has laws against insider
  trading.

3
Why the interest in large corporations?

• Many people generally distrusted big business due
  to
• Changes in the business environment
• Addition of computers/automated machinery into
  the workplace.
• Poor economy, resulting in less job security.
• High profile cases involving large corporations.
  Even if the cases did not involve insider
  trading, attention was called to the
  corporations.

4
Additional causes for concern

• Science fiction movies where things are taken
  over by computers/robots
• Idea that all workers were going to be replaced
  by robots.
• Conspiracy theories regarding the increased use
  of computers
• Big brother is watching you.
• Theyve got you in the computer now, youre part
  of their system.

5
A brief case study

• In November 2001 the Securities and Exchange
  Commission charged 15 individuals with insider
  trading in the shares of Nvidia Corporation, a
  California maker of graphics chips. According to
  the SEC, in March 2000 Nvidia's president used
  e-mail to inform employees the firm had won a
  major contract to supply chips for Microsoft
  Corporation's new Xbox video game system. News of
  the contract was not announced to the public
  until five days following the employee e-mail.
  The time lag allowed the 15 individuals 11
  employees plus 4 people tipped by the employees
  to profit by purchasing Nvidia shares prior to
  the public announcement of the contract. The case
  was relatively unusual in that the individuals
  charged with insider trading were low-level
  employees rather than high-level executives.

6
The Martha Stewart Case

• Contrary to popular belief, Martha was not
  charged with insider trading.
• Her lawyers claim that accusations made by the
  court gave the impression that she was guilty of
  insider trading although she was never charged.

7
The ImClone case

• So the Martha case might be more appropriately
  called the ImClone case.
• Sam Waksal, the founder of ImClone, actually
  plead guilty to insider trading.

8
The Enron Case

• Richard A. Causey and Jeffrey K. Skilling were
  charged with more than 30 counts of fraud and
  insider trading dating to 1999.
• Richard a. Causey was the chief accountant for
  Enron.
• Jeffery K. Skilling was the protégé of Kenneth
  Lay, the chairman of Enron.
• Kenneth Lay was never charged with insider
  trading.

9
The Enron Case continued..

• Skilling, Lay and Causey still claim they knew
  nothing of the scheme devised to bury corporate
  debt and to inflate Enrons earnings.
• None of their cases have gone to trial.
• There have been cases brought against Enron for
  things other than insider trading.

10
Yes, more on Enron

• Linda Lay, Ken Lays wife, is under investigation
  for insider trading.
• She personally arranged for the sale of half a
  million Enron shares in the name of the Lay
  Family Foundation on Nov. 28, 2001. This happened
  just days before Enron fell.

11
Granite State Bankshares

• Prior to the merger of Granite Bank and
  Chittenden Corp. It is alleged that Kevin Hobbs,
  the administrative vice president and director of
  internal audit at Granite State made 19
  transactions in October and November of 2002.
• As a result, he made a profit of 95,109 from his
  knowledge of the merger before it became public,
  according to the SEC complaint filed Tuesday
  November 16 in U.S. District Court in New
  Hampshire.