A picture of "justice"...

[shanek]

...Demopublican style!

http://www.liberty-news.com/cartoons/Justice.gif

<table cellspacing=1 cellpadding=4 bgcolor=#660066 border=0><tr><td bgcolor=#660066><font face="Arial, Helvetica, sans-serif" color=#ffffff size=1>Posted by Pyrrho:</font></td></tr><tr><td bgcolor=white><font face="Arial, Helvetica, sans-serif" color=black size=2>Copyrighted material may not be posted on the JREF Forum; this includes political cartoons. IMG code removed.

As always, this decision may be appealed to Linda (http://www.randi.org/vbulletin/private.php?s=&action=newmessage&userid=5)[/i]</font></td></tr></table>

[Zero]

The punishment for fraud is inversely proportional to the amount you steal. If I rip off $5,000, I'm getting locked up in the big house. If you swipe $80,000 in insider trading, you pay a fine and maybe spend 6 months on house arrest. If you swindle your company out of tens of millions, you get to hang out with politicians and laugh about Martha Stewart's problems...

[Nyarlathotep]

Originally posted by shanek
...Demopublican style!

http://www.liberty-news.com/cartoons/Justice.gif

Heh, speak of coincidences. Chani and I were talking just last night about how Martha Stewart is getting the book thrown at her while Ken Lay is getting nothing. I guess Martha just didn't make campaign contributions to the right people....

P.S. I think Republocrat has a much nicer ring that Demopublican, rolls off the tongue much more naturally...


<table cellspacing=1 cellpadding=4 bgcolor=#660066 border=0><tr><td bgcolor=#660066><font face="Arial, Helvetica, sans-serif" color=#ffffff size=1>Posted by Pyrrho:</font></td></tr><tr><td bgcolor=white><font face="Arial, Helvetica, sans-serif" color=black size=2>Copyrighted material may not be posted on the JREF Forum; this includes political cartoons. IMG code removed.

As always, this decision may be appealed to Linda (http://www.randi.org/vbulletin/private.php?s=&action=newmessage&userid=5)[/i]</font></td></tr></table>

[shanek]

Originally posted by Nyarlathotep
P.S. I think Republocrat has a much nicer ring that Demopublican, rolls off the tongue much more naturally...

I'm inclined to agree, but more people seem to know what you mean when you say Demopublican than Republocrat.

[WildCat]

Ken Lay's gonna get his eventually. The Enron scam was buried in tens of thousands (if not millions) of documents to sort through. The Feds are actively trying to sort it out, it will just take a little time. Martha's case is fairly simple and straightforward.

Or were you trying to start a thread claiming that insider trading doesn't hurt anyone, again?

[Gem]

Ken Lay's gonna get his eventually. The Enron scam was buried in tens of thousands (if not millions) of documents to sort through. The Feds are actively trying to sort it out, it will just take a little time. Martha's case is fairly simple and straightforward.


True.

Anyone remembers how long it took to try and execute NAZI war criminals? It was said that the defense of Japanese war criminals was a big farce.

If it takes years to convict blantantly obvious war criminals, tried by their ENEMIES, it would take a while to try the Enron gang.

Of course, I understand the temptation for mob justice in the Enron case. As the school principle said in the simpsons: "Ahh, there's nothing like mob justice."

Gem

P.S.: Notice, that in both Martha and Enron cases, the media rushed in, and then as quickly as it got hold of the story, they barely mention it anymore?

[hgc]

Quick updates:

Jeffrey Skilling (former President/CEO) of Enron is squarely in the crosshairs, and might be indicted next week -- thanks to the Fastows' (former CFO and wife) cooperation. The worms are making their way up to the head of the corpse.

The most ludicrous charge against Martha Stewart was dealt a blow today by the judge. No expert witnesses will be allowed in the attempt to prove she defrauded investors in her own company by claiming publicly she did nothing wrong.

[karl]

This may be slightly off-topic, but ... am I the only person who thinks it's kind of pathetic when a political cartoonist needs to spell out the names of the people portrayed on top of them and have them hold up signs explaining their situation?

This gives the impression that either the cartoonist is incompetent or he/she is catering to a retarded audience that can't grasp anything beyond the most direct verbal information. It's like ... I don't know ... a mime performance with subtitles.

[Brown]

Originally posted by karl
This may be slightly off-topic, but ... am I the only person who thinks it's kind of pathetic when a political cartoonist needs to spell out the names of the people portrayed on top of them and have them hold up signs explaining their situation?

This gives the impression that either the cartoonist is incompetent or he/she is catering to a retarded audience that can't grasp anything beyond the most direct verbal information. It's like ... I don't know ... a mime performance with subtitles. Interesting observation. Many, many years ago, political cartoons were very detailed. Some of them were almost as detailed as formal portraits. Later, they became more like caricatures. Some cartoonists are so good that they don't need to label their characters. Others aren't quite so gifted.

Also, women are generally harder to "capture" with a caricature than men.

When the characters in the cartoon are not well known (for example, most people would not recognize Ken Lay's face if shown his photo), then the cartoonist might feel it necessary to label his character. After all, a lot more people know who Ken Lay is than know what he looks like.

[Snide]

Originally posted by karl
This may be slightly off-topic, but ... am I the only person who thinks it's kind of pathetic when a political cartoonist needs to spell out the names of the people portrayed on top of them and have them hold up signs explaining their situation?

This gives the impression that either the cartoonist is incompetent or he/she is catering to a retarded audience that can't grasp anything beyond the most direct verbal information. It's like ... I don't know ... a mime performance with subtitles.
This is actually a similar gripe many have, including myself, over all humor. "Explaining the joke."

Mel Brooks movies would be even funnier to me if he didn't make sure to point out the gag too often (see RIchard Lewis's moving mole).

[karl]

Originally posted by Brown
When the characters in the cartoon are not well known (for example, most people would not recognize Ken Lay's face if shown his photo), then the cartoonist might feel it necessary to label his character. After all, a lot more people know who Ken Lay is than know what he looks like.

Yes, but this begs the question: when someone's face isn't widely recognized, is a cartoon really the proper medium for the joke? If the names are written out anyway, the art doesn't add much.

Where I live, using name tags and idiot cards in cartoons is almost unheard of. When the readers are expected to need clarifying information, it's typically done indirectly, for example through dialog. "Can we get a comment, Ms. Stewart?" "Can I refill your drink, Mr. Lay?"

[Libertarian]

Does anyone here consider the POSSIBILITY that insider trading is a victimless crime?

(WHICH, by the way, is NOT what MS is charged with)

[shanek]

Originally posted by Libertarian
Does anyone here consider the POSSIBILITY that insider trading is a victimless crime?

Not only have I considered this, I have started entire threads on it.

[WildCat]

Originally posted by hgc
Quick updates:

Jeffrey Skilling (former President/CEO) of Enron is squarely in the crosshairs, and might be indicted next week
Jeffery's brother Tom is the weatherman on WGN-TV (Chicago). He has a very distinct style of speaking, almost caricature-like. I've always wondered if Jeffery speaks the same way, it would be pretty funny. I've never heard him speak though, but in my mind I hear him talking just like Tom. :p

[Mycroft]

Originally posted by Libertarian
Does anyone here consider the POSSIBILITY that insider trading is a victimless crime?

(WHICH, by the way, is NOT what MS is charged with)

Stealing a dollar each from a million people is just as big a crime as stealing a million dollars from one person.

[Libertarian]

Originally posted by Mycroft


Stealing a dollar each from a million people is just as big a crime as stealing a million dollars from one person.

And exactly HOW is an insider "stealing" from a million people who are going to be buying that stock whether or not the insider is the one who sells it to them?

[WildCat]

Originally posted by Libertarian


And exactly HOW is an insider "stealing" from a million people who are going to be buying that stock whether or not the insider is the one who sells it to them?
Libertarian, if you want to use a company to your own exclusive benefit, keep it private.

Don't ask the public to come up with $$ for for shares of the company, and then deny the relevant market information so you can use it exclusively for your own personal benefit.

Quite simple, really.

I don't understand how Libertarians warn that Federal $$ always comes w/ strings attached, but then apparently think that private $$ shouldn't come w/ strings attached.

[shanek]

Originally posted by WildCat
Don't ask the public to come up with $$ for for shares of the company, and then deny the relevant market information so you can use it exclusively for your own personal benefit.

"Relevant market information"? What are you talking about?

I don't understand how Libertarians warn that Federal $$ always comes w/ strings attached, but then apparently think that private $$ shouldn't come w/ strings attached.

Because Federal money is taken by force. Private money is given voluntarily. Why do so many people have a problem grasping that?

[WildCat]

Originally posted by shanek


"Relevant market information"? What are you talking about?
You know, things like whether or not your product was given approval by the FDA before the FDA report is released.



Because Federal money is taken by force. Private money is given voluntarily. Why do so many people have a problem grasping that?
Because they give it voluntarily with the understanding that you will use it in the best interests of all shareholders, not just your own. The information belongs to all shareholders, and is not yours exclusively. No one forced the company to go public, if you don't like the rules keep it private and do with it as you please.

[shanek]

Originally posted by WildCat
You know, things like whether or not your product was given approval by the FDA before the FDA report is released.

And why would anyone be expected to release FDA information before the report is released? That's just plain ridiculous! And, in many cases, even illegal...

Talk about damned if you do and damned if you don't!

Because they give it voluntarily with the understanding that you will use it in the best interests of all shareholders, not just your own.

No, they give it voluntarily because they are SPECULATING that the value will one day be greater than what they have paid today. Everything else is just shash.

I'll ask you the question that others in the other threads refused to answer: Say you have some insider information that indicates the stock price will likely drop like a brick. You have a lot of stock and naturally want to get rid of it. What should you do?

The information belongs to all shareholders,

That is a completely unfounded assumption that is not at all based in any reality.

[WildCat]

Originally posted by shanek
And why would anyone be expected to release FDA information before the report is released? That's just plain ridiculous! And, in many cases, even illegal...
You're correct that it's illegal to release it. And also illegal to for an insider to leak that knowledge, or act on it (buying or selling the stock). Or any other information that has the potential to impact the market for that stock.

No, they give it voluntarily because they are SPECULATING that the value will one day be greater than what they have paid today. Everything else is just shash.
They also count on the executives of said company to fulfill their legal and ethical duties. Parts of which are not utilizing insider information for their own enrichment, and to act in the best interests of all shareholders.

I'll ask you the question that others in the other threads refused to answer: Say you have some insider information that indicates the stock price will likely drop like a brick. You have a lot of stock and naturally want to get rid of it. What should you do?
It's not illegal for an outsider to act on insider information. Wall street reacts all the time to rumors of the sort.
The insider who leaked the information committed the crime. In Martha's case, she crossed the line into illegality when she allegedly obstructed an FBI investigation into the insider trading.

That is a completely unfounded assumption that is not at all based in any reality.
You're not based in reality if you think people buy stock so that the insiders can use that $$ to leverage their own enrichment through price manipulations based on information denied to the other 99.99% of the shareholders. FTC rules require that publicly owned companies release all relevant information to the public.

Like I said before, if you don't like the rules for publicly traded companies, keep it private.

[shanek]

Originally posted by WildCat

You're correct that it's illegal to release it. And also illegal to for an insider to leak that knowledge, or act on it (buying or selling the stock).

In other words, the insider should be FORCED to sit on his own stock as it tanks. And this is justified, how?

Or any other information that has the potential to impact the market for that stock.

Not only do people trade all the time on such information, that is actually vital to how the stock market functions.

They also count on the executives of said company to fulfill their legal and ethical duties.

Blah blah blah blah blah. We aren't talking about that!

It's not illegal for an outsider to act on insider information.

So why should it be illegal for an insider to act on insider information?

BTW: Martha Stewart was an outsider.

In Martha's case, she crossed the line into illegality when she allegedly obstructed an FBI investigation into the insider trading.

Oh boo hoo hoo. That's like arresting someone for resisting arrest, without arresting them for the thing that they were being arrested for when they supposedly resisted.

You're not based in reality if you think people buy stock so that the insiders can use that $$ to leverage their own enrichment through price manipulations based on information denied to the other 99.99% of the shareholders.

You're just babbling platitudes here. Answer straight: WHO IS BEING HARMED BY THIS?

And answer the other question, while you're at it.

[WildCat]

Originally posted by shanek
In other words, the insider should be FORCED to sit on his own stock as it tanks. And this is justified, how?
Yes, such is the pain of running a publicly traded company. And also the law.[/b][/quote]

Not only do people trade all the time on such information, that is actually vital to how the stock market functions.
Yes, and all market information is legally required to be made available to the public.

Blah blah blah blah blah. We aren't talking about that!
Well, you obviously aren't.

So why should it be illegal for an insider to act on insider information?

BTW: Martha Stewart was an outsider.
Because there are a huge array of ways in which executives can manipulate share prices for their own benefit if it were legal. People would lose faith in the market, pension and insurance companies would pull out. The market would suffer a catastrophic decline, pulling the economy down with it.

And my answer to your last post implied that Martha was an outsider.

Oh boo hoo hoo. That's like arresting someone for resisting arrest, without arresting them for the thing that they were being arrested for when they supposedly resisted.
No, she was arrested for obstructing an investigation. The very charges against her.

You're just babbling platitudes here. Answer straight: WHO IS BEING HARMED BY THIS?
The market is harmed, anyone w/ an interest (stocks, pension, insurance, etc.) is harmed. Do you really think anyone w/ half a brain would invest in the market if it were legal to trade insider information? Maybe execs could sell info on ebay...

And answer the other question, while you're at it.
I already said it is not illegal for an outsider to act on insider information. So why not?
That's a yes.

Now answer my question, Shanek: Why take the company public if you don't like the rules?

I could just see your sales pitch at your IPO:"Just gimme your $$. No, I won't tell you what it will be used for, what products we are developing, or what our income or liabilities are. Lawsuits pending against us are none of your business. Just gimme the $$ and shutup, OK? I may or may not answer those questions after I make a bundle for myself".

How much stock do you think you'd sell?

[WildCat]

And so there's no misunderstanding to my "yes' above, I would be breaking the law if I obtained said insider information by illegal means, such as hacking into company computers.
But if I overheard an exec discussing the info at a restaurant, I'd sell, sell, sell. :p

[WildCat]

One more point, shanek. Insiders who own stock in their company are supposed to enrich themselves by also enriching all the other shareholders. That's the whole theory behind issuing stock to those people in the first place, to give them incentive to increase the value of the shares. Not for their exclusive, personal enrichment.

[shanek]

Originally posted by WildCat
Yes, such is the pain of running a publicly traded company. And also the law.

Invalid. You're using the conclusion to justify itself.

Answer straight: What should a person in that position do in order to be able to sell their stocks and not take the financial hit for something that isn't even their fault?

Yes, and all market information is legally required to be made available to the public.

Invalid. You've already agreed that it is, in many cases, illegal to do so.

Well, you obviously aren't.

No, WE aren't talking about it! That has NOTHING WHATSOEVER to do with the issue! You're just trying to change the parameters of debate because, like the others, you can't debate the direct subject on its merits.

Also, like them, you apparently can't answer direct questions.

Because there are a huge array of ways in which executives can manipulate share prices for their own benefit if it were legal.

Again, WE AREN'T TALKING ABOUT THAT!!! We are talking about someone who happens to have a bit of knowledge wanting to sell his stock. Stop dishonestly trying to bring other unrelated issues into it. We aren't talking about fraud, we aren't talking about stock manipulation, we aren't talking about the withholding of information the stockholders are entitled to. We are talking about someone who has some inside information and wants to sell his stock. What is this person to do? And whom is he harming if he sells his stock?

If you can't answer these questions, then you have no leg to stand on in this discussion.

People would lose faith in the market, pension and insurance companies would pull out. The market would suffer a catastrophic decline, pulling the economy down with it.

Argument from Adverse Consequences.

No, she was arrested for obstructing an investigation. The very charges against her.

But nothing apparently they were investigating against her that she was obstructing. Hence the contradiction.

The market is harmed, anyone w/ an interest (stocks, pension, insurance, etc.) is harmed.

How?

Do you really think anyone w/ half a brain would invest in the market if it were legal to trade insider information?

Argument from incredulity. Besides, it's legal to do so in the commodities market, and yet there's still investing.

I already said it is not illegal for an outsider to act on insider information.

I'm not talking about an outsider. Stop avoiding the question.

Now answer my question, Shanek: Why take the company public if you don't like the rules?

Because we're SUPPOSED to live in a free country, with these things called "rights," rights which include the free sale of your possessions.

I could just see your sales pitch at your IPO:"Just gimme your $$. No, I won't tell you what it will be used for, what products we are developing, or what our income or liabilities are. Lawsuits pending against us are none of your business. Just gimme the $$ and shutup, OK? I may or may not answer those questions after I make a bundle for myself".

This is exactly the kind of dishoenst bigotry I've been railing against for years. Any reasonable person knows that this isn't what I'm talking about, and you know it, too, because none of that is involved in my questions to you. You just bring it up to avoid answering those questions directly. It's a strawman, and an ad hominem attack against me, because yet another big government apologist can't answer a direct question.

[shanek]

Originally posted by WildCat
And so there's no misunderstanding to my "yes' above, I would be breaking the law if I obtained said insider information by illegal means, such as hacking into company computers.

Again, that's not what we're talking about.

[shanek]

http://www.mises.org/journals/scholar/Padilla5.pdf

The Regulation of Insider Trading as an Agency Problem
by Alexandre Padilla

It has been argued that insider trading can be a source of agency problems and, hence, should be prohibited. This paper attempts to assess whether, by prohibiting insider trading, regulation can reduce agency problems. First, it will be shown that regulation has been unable to prevent insider trading. Second, we will explain why the regulation of insider trading cannot be effective. Finally, we will demonstrate that, regarding the reduction of agency problems, it cannot but produce the opposite effect.

[WildCat]

Originally posted by shanek
Invalid. You're using the conclusion to justify itself.

Answer straight: What should a person in that position do in order to be able to sell their stocks and not take the financial hit for something that isn't even their fault?
They're supposed to take the hit like all the other stockholders. Every day thousands of executives do just that.

Invalid. You've already agreed that it is, in many cases, illegal to do so.
No, it's not invalid. The exec who learns of the decision ahead of time is obligated to keep it to himself, and not act on it. After the info is made public, he can do as he wishes. It hurts, I know.

No, WE aren't talking about it! That has NOTHING WHATSOEVER to do with the issue! You're just trying to change the parameters of debate because, like the others, you can't debate the direct subject on its merits.

Also, like them, you apparently can't answer direct questions.



Again, WE AREN'T TALKING ABOUT THAT!!! We are talking about someone who happens to have a bit of knowledge wanting to sell his stock. Stop dishonestly trying to bring other unrelated issues into it. We aren't talking about fraud, we aren't talking about stock manipulation, we aren't talking about the withholding of information the stockholders are entitled to. We are talking about someone who has some inside information and wants to sell his stock. What is this person to do? And whom is he harming if he sells his stock?

If you can't answer these questions, then you have no leg to stand on in this discussion.



Argument from Adverse Consequences.
You asked why it should be illegal, I answered. Now you're upset that I answered? Oh, my. :rolleyes:

And we are talking about all those things. They're all insider information until made public. You can't differentiate between them. You're just trying to move the goalposts. You really think stockholders aren't entitled to know if the main driving force behind a stocks increasing value was declared null and void? Incredible!



But nothing apparently they were investigating against her that she was obstructing. Hence the contradiction.
She could have told them what she knew. She didn't. She lied. That's obstruction. Deal with it.

How?
I told you once, and then you called it an "Argument from Adverse Consequences." Now you ask again? Curiouser and curiouser...

Argument from incredulity. Besides, it's legal to do so in the commodities market, and yet there's still investing.
Commodities are fundamentaly different than stocks. Primarily in that, by definition, they're fungible goods. Stocks are not.

I'm not talking about an outsider. Stop avoiding the question.
I already answered that in this post. If I were the insider, I'd take the hit. It happens every day among honest executives.

Because we're SUPPOSED to live in a free country, with these things called "rights," rights which include the free sale of your possessions.
You're free to sell it, the buyer is right to expect that he knows what he is getting for his $$. And the public expects the gov't to have laws to protect him from fraud.

This is exactly the kind of dishoenst bigotry I've been railing against for years. Any reasonable person knows that this isn't what I'm talking about, and you know it, too, because none of that is involved in my questions to you. You just bring it up to avoid answering those questions directly. It's a strawman, and an ad hominem attack against me, because yet another big government apologist can't answer a direct question.
I've answered every one of your questions as directly as possible. The above is no straw man, it's an position that insider information of a public company cannot be used for an insiders personal profit. As I said earlier in this post, all information is insider until it's made public. In a public company, the public is entitled to that information. IMClones execs could have sold their stock w/o penalty after the FDA rejected the application (which, ironically, was approved last week).

And if you really need to identify a person as being harmed by the insider trading, how about the poor sap who bought the stock from the exec who knows it's value has been seriously deflated, while being told that all relevant information was disclosed?

[shanek]

Originally posted by WildCat

They're supposed to take the hit like all the other stockholders.[/b]

No, NOT like all the other stockholders. The other stockholders get to look at other market indications which show that something is amiss and sell their stocks. The insider doesn't even have this information, so they still can't sell even if they would have done so without the insider information.

In fact, stopping insider trading just masks these indications and more people hang on to their stock not knowing something's wrong.

In any event, none of this answers the question of who, SPECIFICALLY, they are harming if they sell the stock. Don't give me any crap about how they're harming "the market" or "society;" you should be able to point to at least ONE person who has suffered tangible harm by this action. If you can't do that, you have no leg to stand on.

ONE person harmed by it. That's all I'm asking you to show. ONE.

Every day thousands of executives do just that.

Because they're either prohibited by law from doing so or they're scared of being prosecuted or investigated. Anyway, that's argumentum ad populum. You're jhust racking up the fallacies today, aren't you?

No, it's not invalid. The exec who learns of the decision ahead of time is obligated to keep it to himself, and not act on it. After the info is made public, he can do as he wishes. It hurts, I know.[/b]

And so you're punishing him for something that wasn't his fault, and taking away his rights even though his actions DON'T HARM A SINGLE PERSON.

You asked why it should be illegal, I answered.

No, I didn't; I asked you WHO SPECIFICALLY DID IT HARM, and you, like all the others, refuse to answer that.

And we are talking about all those things.

No, we aren't. I know you'd LIKE to, because that's the only way you can justify your position, but the fact is all of these things are illegal even in the absence of insider trading laws. So they are most certainly NOT what we're talkint about.

You're just trying to move the goalposts.

No, I'm not. YOU are the one refusing to answer direct questions. YOU are the one bringing up irrelevant actions. YOU are the one whi is steadfastly refusing to justify his position.

You really think stockholders aren't entitled to know if the main driving force behind a stocks increasing value was declared null and void? Incredible!

Another strawman. Never said it. Stop lying.

She could have told them what she knew.

Yes, and she also could have put a bucket over her head and danced the watussi. It's her right to do either; it's also her right to do neither. If she didn't do anything wrong, then she should be left alone unless she wants to volunteer information.

This attitude is EXACTLY what's been behind so many fascist states. You force people to inform on others, to rat them out, and if they don't, you prosecute them. Remember McCarthyism?

You cannot obstruct justice simply by keeping your mouth shut. You obstruct justice by actively getting in the way of those investigating the crime, and she did NOT do that.

I told you once, and then you called it an "Argument from Adverse Consequences." Now you ask again? Curiouser and curiouser...

I want you to give a rational answer that does not use a logical fallacy. Your previous answer was fallacious. I'm asking for a legitimate one.

Note to lurkers: Do you see how, for so many people, skepticism goes out the window when dealing with politics? Wilcat would NOT tolerate this behavior from a woo-woo; if a woo-woo ever gave a fallacious answer to a question about homeopathy or psychic powers, he wouldn't accept that and would demand an acceptable answer. Now, here he is, chiding me for doing exactly the same thing. "Curiouser and curiouser" indeed!

Commodities are fundamentaly different than stocks. Primarily in that, by definition, they're fungible goods. Stocks are not.

Which has nothing to do with the effect of insider information on trading.

You're free to sell it, the buyer is right to expect that he knows what he is getting for his $$. And the public expects the gov't to have laws to protect him from fraud.

Except that we aren't talking about fraud! We're talking about a legitimate sale of stock! All you are doing is taking some mythical harm that you imply is happening to people you refuse to even point to, and turning it into legitimate harm directly affecting one specific and definitive person!

I've answered every one of your questions as directly as possible.

No, you haven't. The answers were fallacious and even dishonest.

The above is no straw man,

Yes, it is, because I am arguing nothing of the kind and nothing of the kind was stated or implied in my question.

In a public company, the public is entitled to that information.

Here you go again...but again, you blew that argument when you acknowledged that sometimes doing so would be illegal.

IMClones execs could have sold their stock w/o penalty after the FDA rejected the application

Whereas anyone else could have sold anytime they wanted to. And this is fair, how?

And if you really need to identify a person as being harmed by the insider trading, how about the poor sap who bought the stock from the exec who knows it's value has been seriously deflated, while being told that all relevant information was disclosed?

He would have bought the stock anyway. He was looking to buy, he was going to buy. Either way, he was going to take the hit. Try again.

[WildCat]

Originally posted by shanek
ONE person harmed by it. That's all I'm asking you to show. ONE.
Read the last sentence of my last post.

And I stand by my position that the market must not differentiate between classes of stockholders because it would destroy the market. this in and of itself is why it should be illegal.

I'm afraid we'll never see eye-to-eye on this issue, shanek.

[shanek]

Originally posted by WildCat
Read the last sentence of my last post.

I did. It's bogus. He would have bought the stock anyway, so there's no way you can say he was harmed by the insider's actions since he's just as much out of dough as he would have been otherwise.

And I stand by my position that the market must not differentiate between classes of stockholders because it would destroy the market.

And yet, you are maintaining that this is exactly what should be done, by differentiating between insiders and outsiders.

[hgc]

Originally posted by shanek


No, NOT like all the other stockholders. The other stockholders get to look at other market indications which show that something is amiss and sell their stocks. The insider doesn't even have this information, so they still can't sell even if they would have done so without the insider information.

... This paragraph is incomprehensible to me. What information does a non-insider have that an insider doesn't have? Please provide an example.

[WildCat]

Originally posted by shanek
Yes, and she also could have put a bucket over her head and danced the watussi. It's her right to do either; it's also her right to do neither. If she didn't do anything wrong, then she should be left alone unless she wants to volunteer information.

This attitude is EXACTLY what's been behind so many fascist states. You force people to inform on others, to rat them out, and if they don't, you prosecute them. Remember McCarthyism?

You cannot obstruct justice simply by keeping your mouth shut. You obstruct justice by actively getting in the way of those investigating the crime, and she did NOT do that.
She was under no obligation to voluntarily come forward, but is under an obligation to tell what she knows if asked. She didn't commit a crime at that point, so the 5th Amendment doesn't apply.

McCarthyism is a straw man.

I want you to give a rational answer that does not use a logical fallacy. Your previous answer was fallacious. I'm asking for a legitimate one.

Note to lurkers: Do you see how, for so many people, skepticism goes out the window when dealing with politics? Wilcat would NOT tolerate this behavior from a woo-woo; if a woo-woo ever gave a fallacious answer to a question about homeopathy or psychic powers, he wouldn't accept that and would demand an acceptable answer. Now, here he is, chiding me for doing exactly the same thing. "Curiouser and curiouser" indeed!
And you accused me of an ad hominem attack!

You simply declare invalid any position you don't agree with, nice way to avoid the subject at hand. And, oh yeah, the subject at hand can be defined exclusively by you. Logical fallacy? Puh-leeze.

I have directly answered your questions by any stretch of the imagination, your denials notwithstanding.

Except that we aren't talking about fraud! We're talking about a legitimate sale of stock! All you are doing is taking some mythical harm that you imply is happening to people you refuse to even point to, and turning it into legitimate harm directly affecting one specific and definitive person!
I have, you just apparently are in denial. If not outright dishonest.

Here you go again...but again, you blew that argument when you acknowledged that sometimes doing so would be illegal.
Did you even read my answer? Why do you insist on misrepresenting my posts? Let me simplify it so that even you can understand:
ImClone legally learned about the FDA decision to deny the drug application. It would be illegal for IMClone to share this privileged, insider information until after the FDA report was publicly released. It is also illegal for IMClone insiders to act on this information for their own interests. IMClone's responsibility was to keep the info secret until the FDA released it's report.
I have never taken any other position than this on this thread.

Whereas anyone else could have sold anytime they wanted to. And this is fair, how?
It's not about fairness. It's about ethics and responsibility to the shareholders. You're just too thick to understand, just keep repeating that Libertarian dogma. If Harry Browne said it, it must be true...

He would have bought the stock anyway. He was looking to buy, he was going to buy. Either way, he was going to take the hit. Try again.
No, he wouldn't have bought it (at least for that price) had he known the same information the insider did.

Once again, any position you disagree w/ is deemed invalid. Only shaneks views are valid. :rolleyes:

I'm not worried that any lurkers here will think I'm dishonest in my position. But you ought to be.

Goodbye, shanek.

[shanek]

Originally posted by hgc
This paragraph is incomprehensible to me. What information does a non-insider have that an insider doesn't have? Please provide an example.

I'm not claiming that a non-insider has access to anything that an insider doesn't; that doesn't even enter into my claim anywhere.

[hgc]

Originally posted by shanek
No, NOT like all the other stockholders. The other stockholders get to look at other market indications which show that something is amiss and sell their stocks. The insider doesn't even have this information, so they still can't sell even if they would have done so without the insider information.
Originally posted by shanek

I'm not claiming that a non-insider has access to anything that an insider doesn't; that doesn't even enter into my claim anywhere. OK, let me ask again. You said "other stockholders" get to look at "other market indications" that an "insider doesn't even have ..." Aren't "other stockholders" the non-insiders? What are you talking about?

This is at the crux of the issue, as the whole idea of faith in and credibility of the stock market depends on all investors having a level playing field. This level playing field is the access to public information about corporations' operations. Non-public, or not-yet-public information is insider information, no matter who has it or how they got it.

[a_unique_person]

Originally posted by hgc

This is at the crux of the issue, as the whole idea of faith in and credibility of the stock market depends on all investors having a level playing field. This level playing field is the access to public information about corporations' operations. Non-public, or not-yet-public information is insider information, no matter who has it or how they got it.

You obviously have no idea at all how capitalism works, do you? It is all predicated on you knowing something the other guy doesn't, to get an advantage.

[shanek]

Originally posted by WildCat
She was under no obligation to voluntarily come forward, but is under an obligation to tell what she knows if asked.

No, she isn't. That whole "freedom" thing again.

She didn't commit a crime at that point, so the 5th Amendment doesn't apply.

Did I say anything about the 5th Amendment? Please stop trying to put words in my mouth and making up strawman versions of my arguments.

McCarthyism is a straw man.

No, it isn't. It is exactly the kind of thing I was talking about: If you didn't rat out others, you yourself could be prosecuted, regardless of what you were supposed to rat others out for was legitimately a crime or not.

You simply declare invalid any position you don't agree with, nice way to avoid the subject at hand.

No, I don't. I gave the reasons why. And you apparently don't want to deal with that.

I have directly answered your questions by any stretch of the imagination, your denials notwithstanding.

Your answers were fallacious and invalid, and I gave the reasons why.

Did you even read my answer?

Yes.

Why do you insist on misrepresenting my posts?

If I have inadvertently misrepresented anything, please clarify.

ImClone legally learned about the FDA decision to deny the drug application.

Then they committed a crime and should be punished for that crime, and it's perfectly reasonable to say that any monetary benefit they gained from the commission of that crime should be forfeited, no insider trading laws necessary. And that was my whole point.

It's not about fairness.

Obviously. It's not about freedom, either. So if it's not fair, and it's not free, then why is it something a free country should even consider doing?

It's about ethics and responsibility to the shareholders.

No, it's not; if it were, the enforcement would be left in the hands of the shareholders, who would vote with their dollars. Any corporation that was so untrustworthy would have difficulty finding people willing to buy their stock. Over in another thread, I got the anti-insider trading types to acknowledge that, and yet they still felt that that was somehow a rebuttal of the Libertarian position.

No, that's just the rhetoric; what it's really about is giving the politicians power to grant favors to their friends and supporters.

You're just too thick to understand, just keep repeating that Libertarian dogma. If Harry Browne said it, it must be true...

I want this level of immaturity displayed herein on the record, your honor.

No, he wouldn't have bought it (at least for that price) had he known the same information the insider did.

But you yourself said he wouldn't have the information and it would be illegal for anyone to give it to him. So we're really left with two options:

1) He buys it from the insider, and
2) He buys it from someone else.

You're just weaseling and moving the goalposts, because you refuse to look at the actual way this works.

Once again, any position you disagree w/ is deemed invalid. Only shaneks views are valid. :rolleyes:

No, because again, there are objective REASONS your position is invalid, reasons I have given. You just don't want to deal with it.

[shanek]

Originally posted by hgc

OK, let me ask again. You said "other stockholders" get to look at "other market indications" that an "insider doesn't even have ..." Aren't "other stockholders" the non-insiders? What are you talking about?

Look...this is blindingly simple. Let's look at three people:

Insider with information
Insider without information
Outsider (of course without information)

The Outsider is free to look at market indications which may suggest the stock is going south, and sell.

The insider without information is free to do so, but in doing so may open himself up to an investigation.

The insider with information, according to WildCat, is NOT free to sell even if he would have done so in the absence of the information he has.

Get it?

This is at the crux of the issue, as the whole idea of faith in and credibility of the stock market depends on all investors having a level playing field.

No such thing. Never will be.

"Now there's no more oak oppression / For they passed a noble law / And the trees are all kept equal / By hatchet, axe, and saw." &mdash;Rush, The Trees

[hgc]

Originally posted by shanek


Look...this is blindingly simple. Let's look at three people:

Insider with information
Insider without information
Outsider (of course without information)

The Outsider is free to look at market indications which may suggest the stock is going south, and sell.

The insider without information is free to do so, but in doing so may open himself up to an investigation.

The insider with information, according to WildCat, is NOT free to sell even if he would have done so in the absence of the information he has.

Get it?



No such thing. Never will be.

"Now there's no more oak oppression / For they passed a noble law / And the trees are all kept equal / By hatchet, axe, and saw." &mdash;Rush, The Trees You keep saying that outsiders have access to information that insiders don't have, but you refuse to explain what that might be. If it's so blindingly simple, why don't you just give me an example?

The guy at the assembly line at a GM plant who knows no more than you and I about the GM earnings projections about to be released in 3 days is not an insider as far as insider trader laws are concerned. Insider information is that which will materially affect the stock price, but is not, or not yet, public information. Your "insider without information" component is a total fiction. There is no such thing as an "insider" or an "outsider" as far as the law is concerned but rather "insider information" and "public information," who is in possession of that insider information, and what they do with it. It has nothing to do with, for instance, who is an employee of the corporation in question. A graphic designer for the printing company that is preparing the prospectus document for a take-over bid of one company by another may whisper to his uncle's cousin's maid that she should snatch up shares of the target company. And that far removed person has insider information, and is guilty of legal and ethical violations if she acts on it.

For something so simple, you seem to have a lot of trouble getting it.

[hgc]

Oh, by the way. Just to be clear on the subject of Martha Stewart...

I think she committed insider trading, but since the prosecution couldn't find a way to prove it, they cooked up these other ridiculous charges. It's a total farce. She should, and will, be acquitted.

[Zep]

Shane, as far as I can tell (and please correct me if wrong), your argument is that an astute stockholder may come into information that would give them prior indication of stock values such that they might be able to take advantage of it compared to other stockholders in that stock. But that if they acquired that knowledge via what has previously been legal "insider" sources then they will be prevented from making trades in advance of other stockholders (i.e. insider trading). And you think this is a restriction that should not apply to "astute" traders. Yes?

If so, let me add a comment or two.

In any stock held by a company, there will be only a finite number of shares. Major sales of these shares affect stock value one way or another, minor sales less so. If there are many small shareholders, insider knowledge is unlikely to affect overall stock values. If most company stock is held by a few stockholders, insider knowledge will greatly affect stock values, even whole markets.

The issue also involves timing. While there are many company directors who will know well in advance of stock trades or changes in corporate operation that will greatly affect stock values, there are pressures on them to not reveal these immediately they are known.

For example, obviously internal forecasts of a poor financial performance will weaken share values if released immediately, so often the later this is revealed, the better - it allows ameliorating measures to be put into place. Likewise, for similar purposes, progress on takeovers and mergers is usually hushed up until the deal is done and signed.

So consider the situation where the executives in each of the above scenarios hold large swathes of corporate stock. They know that something momentous will happen to the company stock values, and they can make a killing off that information. And if they start to buy/sell, they will effectively block many other stockholders or potential stock purchasers from access to that limited stock block. That is, they take priviledged advantage of insider knowledge, to the disadvantage of the rest of the market.

Should they be allowed to do this is a free market economy? IS it a dog-eat-dog situation, or just one law for the priviledged few and one for the rest of us? Is it actually a "free market" if non-priviledged people are prevented from participation in it, in this fashion? What would be the best solution to prevent this happening, do you think?

[hgc]

Originally posted by Zep
...

Should they be allowed to do this is a free market economy? IS it a dog-eat-dog situation, or just one law for the priviledged few and one for the rest of us? Is it actually a "free market" if non-priviledged people are prevented from participation in it, in this fashion? What would be the best solution to prevent this happening, do you think? Dog-eat-dog. That's the Libertarian paradise.

[Suddenly]

Since we are in re-runs anyway, let me suggest this link. (http://www.frbatlanta.org/publica/eco-rev/REV_ABS/97ER/q4/Noe-Hu.pdf) (pdf format) as a more neutral and comprehensive discussion of the topic than the Padillia article mentioned above, which, as illustrated below addresses a particular segement of the insider trading issue, and not the whole thing.

This is an article from the Federal Reserve Bank of Atlanta Economic Review, Fourth Quarter of 1997, titled "The Insider Trading Debate."

This gives a discussion of the legal basis and economic theories that make up a very, very complex topic. This is a good primer on the subject, one that doesn't take a one dimentional approach to the problem, like some other articles. It has a bit of jargon, but it doesn't say things like "property rights are in fact a necessary condition for human action." It seeks to inform, not persuade, and does not attempt to reduce a massively complex issue to trivial simplicity.

Then there is my earlier post attempting to give a sense of what deregulation of insider trading really means, and give a sense of where the current controversy is centered:

There was a large thread that became an "insider trading" thread where it was declared by a poster that it was a fact that insider trading should be legal as it hurts no one.

Now... I was aware there were certain theories to that effect, but they were just that - a few theories, so I started questioning that premise and as a result I don't think the premise was expressed very well, and the argument really didn't go anywhere.

I thought that a shame since the theory is actually much more reasonable than it appeared to be in that thread. So, I decided to do what I should have done in the first place, lay out the theory and the basic problems with it as I see it.

Some background: Any knowledge I have w/r/t this topic is a result of some practical experience with smaller corporations, and from teaching a course in Business Law at a nearby college. One chapter was on insider trading and I wound up devoting some time to the theory that insider trading would be better off not being regulated. The material comes from that. This isn't a research paper, so there will be very little citing of sources. I'll just go from memory.

Insider trading is not, as it may seem, trading by someone with information others do not have. For the laws to apply, that information must come from the inside of the corporation appropriated in violation of the insider’s duty as an agent of the corporation and not available to the general public. Persons other than insiders can be in violation via legal theories analogous to “receipt of stolen property” where the outsider knows that the information was “stolen” and uses it anyway.

Even without the laws making it illegal, absent permission from shareholders, insider trading violates an insider’s duty to the shareholder as the agents shareholder.

Which brings me to the main point. Often when we hear arguments that insider trading should be legal we equate that to the idea that the insider must have some right to trade with insider information. However that is a bit of a strawman. When economists and such speak of this concept, it is more in line with the principle that shareholders should have the right (through their representatives on the board) to choose to allow the insiders to trade on inside information. This is a subtle but important distinction.

From a moral perspective the argument is simple. Consent. Stockholders choose whether to allow insider information by vote, just like any other corporate policy. Those who want to buy the stock are aware of company policy before they buy, so any financial setback from people trading on the market with better informed people is, from a moral standpoint, consented to.

More interesting is the economic justification. Obviously, if there were no benefit to allowing such trading, shareholders wouldn’t ever vote to allow it. One benefit to the shareholders is that they can, so to speak, “sell” the right to trade with inside information to the employees by making it part of a compensation package.

Insider trading is on the aggregate, a neutral activity, just as all other transfers of stuff. This is opposed to a negative aggregate, such as murder or arson, where less stuff emerges, or a positive aggregate, such as building a house, where raw materials become a finished useful product. This is not to say all neutral activities are equal to either the parties involved or society as a whole. A negotiated trade of a car for currency is a different story from me swiping your wallet.

So the theory goes, insider trading is overall neutral as far as it being a transfer. So, the question is what other effects does it have. One effect is it causes other people on average to receive lesser value from stock trades. Another is that it does to a point increase market efficiency in that information gets into the market faster. In the simple version, that is about it. These effects will affect companies differently depending on the size of the corporation and the market structure. Clearly, for a company with 2 owners where one is active in day to day business and one is not, the first effect is bigger than the second, if not only because the efficiency of the market is a worthless concept as there likely is no market for the shares. In a huge publicly traded corporation it can be a different story.

The legalization theory holds that some corporations are better off if they allow the trading as the combined effect of the sale of the rights and added market efficiency outweighs any lesser value from sale of stock. Furthermore, the theory holds that private enforcement against insider trading by the corporations not allowing the insider trading is more efficient than public enforcement by the government.

Another point in favor of legalization that doesn’t fit in nicely above is that there will always be insider trading activity that is impossible to regulate. An insider may chose to not sell or not buy based on inside information, and absent a Vulcan mind meld we would never know.



Two common criticisms of the above theory:

1) Allowing officers to trade on inside information creates perverse incentives, in that the officers will profit mostly from huge market swings than from creating shareholder wealth. This would create a conflict of interest, one that the corporation can’t really manage without climbing all over the officer’s butt with a magnifying glass. There are rebuttals to this, and one is by Libertarian economist and proponent of the “Austrian School of Economics” Alex Padilla. The rebuttal is on his website at http://www.alexpadilla.org/contents.htm, an article titled “Can Agency Theory Justify the Regulation of Insider Trading."

2) Insider trading harms the liquidity in small markets as it puts other speculators, as well as market specialists, at a disadvantage. Society prizes liquidity in its markets, that stocks can easily be converted to cash and vice versa. It encourages investment in the market when an investor can easily buy or sell. There are two classes of people that increase liquidity, speculative traders and specialists. Specialists are special traders that help “make a market” in a particular stock by maintaining an inventory and trading as needed. Insider trading means that they will be making on average a higher percentage of trades in poor situations where stock is likely to go down.

Also, speculative traders that make their living by exploiting a general informational advantage against investors who “do less homework” are now trading in a market with others that have an economic advantage. The logic behind allowing regular speculative investing and not insider trading is expressed best by footnote 10 in this article: http://www.frbatlanta.org/publica/eco-rev/REV_ABS/97ER/q4/Noe-Hu.pdf


quote:
--------------------------------------------------------------------------------

Informed trading by noninsiders is generally tolerated by those opposed to insider trading under the rationale that a noninsider’s information does not result from having a special position that allows access to the firm’s information. In theory, any investor can become an informed trader if he is willing to invest the necessary resources. The option to become an insider is not generally available.

--------------------------------------------------------------------------------


Harming those that provide liquidity will cause them to leave the market. Less liquidity means less investment, which makes it harder to raise capital by selling stock, which harms the market as a whole.

There is also the obvious fact that these market professionals suffer a negative consequence, but then again, absent liquidity these guys don't provide a service, so who cares.

3) The general argument that the private enforcement by firms not allowing the trading will be less efficient, if not a practical impossibility, and requiring such a level of shareholder vigilence will decrease liquidity as who needs the stress of keeping an eye on people. That Padilla dude mentioned above addresses this as well.


I’m sure there is something from some economist to contradict most everything I claim above. Economics is hardly an exact science, and there is discord at almost every level. However, this is as far as I can tell a balanced description of the “legalization” viewpoint.

[shanek]

Originally posted by Zep
So consider the situation where the executives in each of the above scenarios hold large swathes of corporate stock. They know that something momentous will happen to the company stock values, and they can make a killing off that information. And if they start to buy/sell, they will effectively block many other stockholders or potential stock purchasers from access to that limited stock block. That is, they take priviledged advantage of insider knowledge, to the disadvantage of the rest of the market.

That is absolutely not true. You're neglecting two critical effects: 1) the price of stocks is based heavily on supply and demand; the more people selling their stock, the greater the supply, and this will lower the price; 2) buyers decide how much stock they want to buy based on the dollar amounts, not the amount of shares.

Them selling their shares DOES NOT block anyone else from selling theirs. What it does do is reduce the sale price for EVERYBODY. Meaning that your insiders are going to take the same hit as the other sellers.

Now, the extra shares that are now on the market are going to cause the prices of individual shares to drop; but this ultimately means that, since buyers decide to by a value of stock, not a number of shares, they would (all other things being equal) simply be buying more shares.

However, don't think they aren't looking at what's going on. Since there's more shares available, the price has dropped. Since the price has dropped, this could easily be read as an early warning signal that something is amiss, causing the potential buyers to drop out or reduce the amount they want to buy. Now we have fewer dollars chasing after more shares. Which means that the people who don't buy will escape the impending doom, and those who do buy don't take as much of a hit when the stock price drops.

THIS is how it works. It is NOT a zero-sum game. The introduction of new sellers does NOT crowd out anyone else, and if anything, insider trading helps at least some people avoid the crash that's coming, or at least to not be as adversely affected by it.

What would be the best solution to prevent this happening, do you think?

Simple: Let corporations set their own policies regarding this. Pretty much everyone in the other thread acknowledged that this would mean that corporations would have the incentive to make internal policies (with effective internal policing, no government intervention necessary) that would prevent the fraudulent behavior we discussed while not oppressing the more legitimate behavior. Strangely, they felt that this somehow argued against the Libertarian position, even though it got them what they wanted with no government intervention. That's the kind of "thinking" that I'll never understand...

[shanek]

From the last page of the other thread:

http://www.randi.org/vbulletin/showthread.php?s=&threadid=29349&perpage=40&pagenumber=6

Originally posted by Thanz
Question Avoider shanek,

Why would any rational company adopt a policy that allows for insider trading? It can only have the effect of depressing the stock price - which means less money for the corporation on a stock issue and more difficulty in raising capital in the first place. It sets up conflicts of interest for the officers and directors of the corporation. It scares away potential investors. There is no benefit to the corporation by allowing its insiders to trade on confidential information.

So, why would a company adopt such a policy?

Exactly. If the behavior is harmful, and scares away potential investors, then of course they're going to write their policy to avoid and punish such behavior. On the other hand, if the behavior is unharmful, they would have every incentive to allow it. The decision would be made based on what is actually harmful, not what is politically expedient.

Notice that the above quoted post is from someone who was vociferously arguing against me; and yet, while apparently thinking he was making some sort of great rebuttal, he supported my side famously. Thank you, Thanz! :D

[Zep]

Originally posted by shanek
That is absolutely not true. You're neglecting two critical effects: 1) the price of stocks is based heavily on supply and demand; the more people selling their stock, the greater the supply, and this will lower the price; 2) buyers decide how much stock they want to buy based on the dollar amounts, not the amount of shares.

Them selling their shares DOES NOT block anyone else from selling theirs. What it does do is reduce the sale price for EVERYBODY. Meaning that your insiders are going to take the same hit as the other sellers.
I would beg to differ. The time difference between when the insider trader buys/sells and when the others get to hear of it and react is what makes the difference.

I have worked in a modern stock exchange - time differences of this sort are measured in seconds because it is usually completely automated computer trading by brokers. (The old shouting stock floor and greed-is-good terminals are pretty much a movie myth, really.)

So getting the jump on other traders using insider knowledge takes pretty deliberate setting up ahead of time, which would suggest that there is likely some attempt being made to make an unfair advantage over other stockholders.

However it is not like I disagree that smart operators who can play the markets, and who read the financial pages, and who listen to commentators, and who hang out with big-mouthed execs in bars, should NOT be able to use their guile and skills to their own advantage. That's certainly OK and part of the game. PROVIDED the same information is considered to be freely & readily available to anyone else at the same time. If the losers weren't smart enough to gather and read those signals too, well too bad for them!

[Thanz]

Originally posted by shanek
From the last page of the other thread:

http://www.randi.org/vbulletin/showthread.php?s=&threadid=29349&perpage=40&pagenumber=6

Exactly. If the behavior is harmful, and scares away potential investors, then of course they're going to write their policy to avoid and punish such behavior. On the other hand, if the behavior is unharmful, they would have every incentive to allow it. The decision would be made based on what is actually harmful, not what is politically expedient.


You won't be surprised to find out that I disagree that my post supports your position. I encourage interested readers to go to the other thread and read our exchange on this topic there. I'd also like to point out your continued avoidance of my questions in that thread.

I would like to point out the italicised portion above, however. First of all, you have presented no arguments that the behaviour is in fact non-harmful in the ways I point out in my post. Why would there be an incentive to allow it? I want to know what particular incentive there is for a corporation to allow insider trading in its stock.

[Suddenly]

Originally posted by Thanz

You won't be surprised to find out that I disagree that my post supports your position. I encourage interested readers to go to the other thread and read our exchange on this topic there. I'd also like to point out your continued avoidance of my questions in that thread.

I would like to point out the italicised portion above, however. First of all, you have presented no arguments that the behaviour is in fact non-harmful in the ways I point out in my post. Why would there be an incentive to allow it? I want to know what particular incentive there is for a corporation to allow insider trading in its stock.

The incentive has to do with a cost balance.

It is pretty well accepted that allowing insiders to trade will, all other things being equal, put traders of the stock in a worse financial position than if there were no insider trading.

Thing is, everything isn't equal. The right to use that information is more or less an asset belonging to shareholders, and if the shareholders were allowed to "sell" the use of that information to the insiders for more than the negative effect of the insider trading, then it would be rational to sell the information.

Anyone trading in the stock would be aware of such an arrangement, so they are in effect by allowing such an arrangement exchanging a disadvantage in trading for other consideration, usually reduced compensation for insiders. It is possible, at least in theory that such an arrangement could lead to increased shareholder value.

Governmental regulation of insider trading is justified, if at all, by liquidity issues. Equal access to information helps liquity more than regulating insider information harms insiders and market efficiency, or at least that is the judgment call we currently are making. Shanek would likely object to this observation on libertarian grounds, and he would be consistent to do so. Insider trading at heart is not about direct harm to shareholders, as its regulation is more about encoraging an efficent market. If it were legal, there would be no harm, assuming the stockholders consent to allow insider trading; in effect "selling" the right to use information obtained by insiders conducting company business.

This isn't to say that an insider trader under present laws is commiting a victimless crime. For such insider trading to be legal, that insider must purchase the right to use the information from the stockholder. Such a transation is barred by law, so it never takes place. Thus, today's insider in commiting a theft by using for his/her own purposes information rightfully belonging to the stockholder without paying for the right to use the same.

[Thanz]

Originally posted by Suddenly


The incentive has to do with a cost balance.

It is pretty well accepted that allowing insiders to trade will, all other things being equal, put traders of the stock in a worse financial position than if there were no insider trading.

Thing is, everything isn't equal. The right to use that information is more or less an asset belonging to shareholders, and if the shareholders were allowed to "sell" the use of that information to the insiders for more than the negative effect of the insider trading, then it would be rational to sell the information.

Anyone trading in the stock would be aware of such an arrangement, so they are in effect by allowing such an arrangement exchanging a disadvantage in trading for other consideration, usually reduced compensation for insiders. It is possible, at least in theory that such an arrangement could lead to increased shareholder value.
I don't see the benefit, even in theory. Even if we accept that the shareholders could "sell" the use of the insider information, what are they selling it for? A depressed stock price? Even "reduced insider compensation" isn't much of a bargain - it simply encourages behaviour that has more to do with manipulation of the stock price rather than building a successful company.

I just don't see how insider trading can benefit anyone other than the insider - the corporation has more trouble attracting capital, and the shareholders receive no benefits at all (that I can see). In order for it to be a good idea, there needs to be some benefits to offset the harm. I don't see them, even in theory.

[Suddenly]

Originally posted by Thanz

I don't see the benefit, even in theory. Even if we accept that the shareholders could "sell" the use of the insider information, what are they selling it for? A depressed stock price? Even "reduced insider compensation" isn't much of a bargain - it simply encourages behaviour that has more to do with manipulation of the stock price rather than building a successful company.
Yes, encouraging price manipulation is a big issue, one with an unclear soulution. This is a large part of what that Padilla article shanek is always mentioning deals with, and in my opinion he falls a bit short. I'm with you as to that. However, the danger of such activity can be factored into the value placed on the rights as sold, so this issue really doesn't make the transaction impossible as much as it would encourage shareholders to be real careful as to whom they do this sort of business with.


I just don't see how insider trading can benefit anyone other than the insider - the corporation has more trouble attracting capital, and the shareholders receive no benefits at all (that I can see). In order for it to be a good idea, there needs to be some benefits to offset the harm. I don't see them, even in theory.

Consider corp XYZ. It is a very large corporation with reletively low trading volume. It pays a decent dividend. It determines that CEO is the best choice to run the corporation. CEO has a market value of 20 million per year, but will likely increase profits by at least 4 times that. CEO offers to come aboard for either a salary of 20 million, or in the altenative a salary of 1$ plus the right to trade on insider information.

The only question for the shareholders is whether the insider trading rights is worth the 20 million. This is a business transaction just like any other.


The idea being that in and of itself this choice harms no one unless the sharholders (or the CEO) is inaccurate in the valuation of the right. There are possibly individual companies in situations where this makes sense given risk analysis and the benefit of moving a salary "off the books" as it were. Anyone chosing to later buy the stock could be aware of the arrangement, so purchase would signify consent.

It is possible, however unlikely, that a particular company can profit from this.

Problem is, this would harm professional traders that provide liquidity, which would stifle investment thus eventually driving down the market as a whole. It is dangerous stuff, and it makes sense to standardize this kind of activity to make the market more liquid as a whole. Whether the government should be acting to do so is where the Libertarians get a bit peeved.

[Thanz]

Originally posted by Suddenly
Consider corp XYZ. It is a very large corporation with reletively low trading volume. It pays a decent dividend. It determines that CEO is the best choice to run the corporation. CEO has a market value of 20 million per year, but will likely increase profits by at least 4 times that. CEO offers to come aboard for either a salary of 20 million, or in the altenative a salary of 1$ plus the right to trade on insider information.

The only question for the shareholders is whether the insider trading rights is worth the 20 million. This is a business transaction just like any other.
I know this is just an example, but I see it as both extremely unlikely and extremely inefficient. First, if a company chooses to take a salary off the books, the best way to do this is with stock option incentives rather than insider trading. (Actually taking salaries off the books is a bad idea, however, even with stock options). By granting CEO a bunch of potentially lucrative stock options, you provide an incentive for him to do well. Allowing insider trading means that CEO can make money even if the company goes into the toilet. He may make even more money if it does, if CEO has earned the reputation as a good executive and the market expects that.

The idea being that in and of itself this choice harms no one unless the sharholders (or the CEO) is inaccurate in the valuation of the right. There are possibly individual companies in situations where this makes sense given risk analysis and the benefit of moving a salary "off the books" as it were. Anyone chosing to later buy the stock could be aware of the arrangement, so purchase would signify consent.
I don't see the benefit of moving expenses off the books. It artificially increases profit and therefore the tax liability of the corporation.

[/B][/QUOTE]It is possible, however unlikely, that a particular company can profit from this. [/B][/QUOTE]
I think that it is only possible in the "anything's possible" sense. For practical purposes, I think that it is simply unworkable.

[Suddenly]

Originally posted by Thanz


I think that it is only possible in the "anything's possible" sense. For practical purposes, I think that it is simply unworkable.

Right, but that is the crux of the libertarian argument on this issue. You or I may have good reason to believe that such an arrangement will not benefit stockholders. However, this does not establish that such harm is a necessary result.

This would be an issue between stockholders and their agents, so if the only persons being harmed are those consenting to the activity there is no reason for the government to be involved in any way.

From a Libertarian perspective this is a very powerful point that pretty much ends the inquiry as to whether insider trading should be regulated by government . From a non-Libertarian perspective it isn't really much of a point at all. However, we need to ask ourselves whether it is a legitimate use of government to protect shareholders from likely bad business deals, or at least identify harm to some third party not consenting to the insider trading. That's where liquidity analysis comes in, at least in my opinion.

[shanek]

Originally posted by Zep

I would beg to differ. The time difference between when the insider trader buys/sells and when the others get to hear of it and react is what makes the difference.

If you'd go back and read what I was speaking about, you'd see that that has absolutely nothing to do with it. I'm talking about the selling and buying that goes on while the insider has the information, but BEFORE it's made public. So, try again.

So getting the jump on other traders

It isn't about "getting the jump" on anybody. It's simply about how many shares are up for sale vs. how many people buy them. No one has to "get the jump" on anyone for the effect I described to happen.

However it is not like I disagree that smart operators who can play the markets, and who read the financial pages, and who listen to commentators, and who hang out with big-mouthed execs in bars, should NOT be able to use their guile and skills to their own advantage. That's certainly OK and part of the game. PROVIDED the same information is considered to be freely & readily available to anyone else at the same time. If the losers weren't smart enough to gather and read those signals too, well too bad for them!

But the outright prohibition on insider trading as described by WildCat, as I showed, would remove one such indicator.

[shanek]

Originally posted by Thanz
You won't be surprised to find out that I disagree that my post supports your position. I encourage interested readers to go to the other thread and read our exchange on this topic there. I'd also like to point out your continued avoidance of my questions in that thread.

As anyone who reads the thread can see, I avoided nothing. YOU avoided how I addressed the questions, or just waved them off as "irrelevant" with no explanation why.

I would like to point out the italicised portion above, however. First of all, you have presented no arguments that the behaviour is in fact non-harmful

I said "IF." Stop weaseling.

Why would there be an incentive to allow it? I want to know what particular incentive there is for a corporation to allow insider trading in its stock.

I had an answer composed for this, but Suddenly explained it much better than I ever could so I'll let his points stand.

[Thanz]

Originally posted by shanek

As anyone who reads the thread can see, I avoided nothing. YOU avoided how I addressed the questions, or just waved them off as "irrelevant" with no explanation why.
Come now Shanek, that just isn't true. Here are the questions that you refused to answer:

I'd appreciate it if you could address the following situations. They all deal with Wildcat's company (X co.) that relies upon Acme for 75% of its business. There is no formal arrangement (supply agreement or whatever) between the two such that Acme cancelling is not a breach of contract or whatever. In all cases below, Adam is the insider who knows about the cancellation and Bob is the person who wants to buy stock in the company, but doesn't know about the Acme cancellation. Adam never tells Bob about the cancellation prior to a sale, and in each case Adam sells the shares and Bob buys them.

In which of the following scenarios is it fraud and in which is it not fraud?

1. Adam and Bob are partners
2. Adam and Bob are 50-50 shareholders in X co.
3. Adam owns 25% and Bob owns 75% of X co.
4. Adam and Bob each own 33% of X co.
5. Adam and Bob are 2 of 10 equal shareholders.
6. Adam owns 30%, Bob is an outside purchaser.
7. Adam owns 75%, Bob is an outside purchaser.
8. Adam and Bob trade shares in a very thinly traded public market (their trade is the only one that day for the stock) and (a) Bob is a current shareholder or (b) Bob is a new shareholder after the purchase.
9. Adam and Bob trade in a slightly busier trading day - their's is one of 10 trades and (a) Bob is a current shareholder or (b) Bob is a new shareholder after the purchase.
10. Adam and Bob trade in a busy market - their trade is one of hundreds that day and (a) Bob is a current shareholder or (b) Bob is a new shareholder after the purchase.

I realize that is a lot of questions, but I am trying to understand where you are coming from and where the line gets drawn (if anywhere).

Shanek, you previously said that the first situation is fraud and that the last one is that it is not fraud. You refused to comment on the ones in between. I ask you to contemplate whether there is a substantive difference in Adam's behaviour in any of those situations such that in the first example it is fraud but not in the last. My position is that there is no substantive difference.

[shanek]

Originally posted by Thanz

Come now Shanek, that just isn't true. Here are the questions that you refused to answer:

Thanz, I responsed to that several times:

Originally posted by Thanz

I am not asking you to repeat yourself. I know that you have said that the relationship is important. So, I have outlined 10 different relationship scenarios and have asked you to tell me in which cases the action of selling the shares would be fraud and in which it wouldn't. Why can't you do this simple thing? Despite what you say, you haven't answered my questions.

Because those questions are NOT about "relationship scenarios," which don't have a thing to do with how many shares one person has vs. another! It has to do with what kind of information the person has and what they're representing to the other person. And all you need to do is reread through my posts on this thread to see that.

Originally posted by Thanz

Nice attempt at a dodge, but I'm not buying it. In each of those scenarios the insider has the same knowledge (loss of a big customer) and says nothing to the other party (same representation or non-representation).

Now you're being disingenuous. We've already established that the kind of insider trading we're talking about involves a person who has absolutely no idea whom he's selling the stock to, nor could he have any real likelihood of finding out if he tried! And that brings us straight back to the very question you and everyone else here refuse to answer..

Because it's completely irrelevant! You are setting up a strawman version of my claims about the relationships with the people involved. You are also trying to get me to draw a definitive line, when with ANY law there will always be grey areas. Your request is irrelevant and invalid, period.

Originally posted by Thanz

How is it in any way a strawman?

Because I am not now nor have I ever denied that when people who have a working relationship and trust with each other that acting in bad faith is a breach of that. And yet, that is exactly the scenario you and everyone else keep falling back on. But that ISN'T WHAT WE'RE TALKING ABOUT! THAT'S why the questions are irrelevant and invalid!

Just a few examples from the last couple of pages. And yet, here you are,a cting as if I've said nothing instead of considering what it is I did say.

Pathetic, but then so very typical of you.

[Thanz]

Originally posted by shanek


Thanz, I responsed to that several times:
FYI: A "response" is not the same thing as an "answer". I did not say that you did not respond - I said that you refused to answer the questions. Which you did, and still do. I addressed each of your excuses in the other thread. And, of course, you snip out those parts. Pathetic, but typical of you.

Let's look at the last one:

Because I am not now nor have I ever denied that when people who have a working relationship and trust with each other that acting in bad faith is a breach of that. And yet, that is exactly the scenario you and everyone else keep falling back on. But that ISN'T WHAT WE'RE TALKING ABOUT! THAT'S why the questions are irrelevant and invalid!
No, the questions are valid because they show a progression from the scenario that you admit is fraud to the scenario that you say has no fraud. I am trying to pinpoint at what point it switches from "fraud" to "not fraud". Or, to put it another way, at what point does one have a duty of disclosure?

[shanek]

Originally posted by Thanz

FYI: A "response" is not the same thing as an "answer". I did not say that you did not respond - I said that you refused to answer the questions.

Which, as I've just shown, is a LIE. I provided reasons why the questions were invalid, immaterial, and irrelevant, reasons which you refuse to rebut, address, or even acknowledge. They were nothing more than a trap set for me based on a strawman version of my arguments. Answering the questions would require me to make assumptions that were NOT part of my original argument, kind of like trying to answer, "Have you stopped beating your wife?" I pointed that out. That is NOT the same thing as refusing to answer the questions!

[Thanz]

Originally posted by shanek


Which, as I've just shown, is a LIE. I provided reasons why the questions were invalid, immaterial, and irrelevant, reasons which you refuse to rebut, address, or even acknowledge.
I rebutted your attempts at making the questions invalid in the other thread. You conveniently snipped them out. You kept blathering on about how my scenarios were not the kind of trading we were talking about, and that you never denied that the partner scenario was fraud. Well, that was the point. You said that scenario 1 (partners) was fraud, and that scenario 10 (insider trading in big market) was not. I was trying to get you to address the other scenarios, as it is my position that both are fraud, along with everything in between.

They were nothing more than a trap set for me based on a strawman version of my arguments. Answering the questions would require me to make assumptions that were NOT part of my original argument, kind of like trying to answer, "Have you stopped beating your wife?"
What assumptions does it require you to make? How is it remotely like the wife beating example?

That is NOT the same thing as refusing to answer the questions! No, you concocted some BS arguments to avoid answering my questions because they logically showed your position to be in error. That is exactly like refusing to answer the questions.

And you still haven't answered them.

[shanek]

Originally posted by Thanz

I rebutted your attempts at making the questions invalid in the other thread.

No, you didn't. You just perpetuated the strawman.

Well, that was the point. You said that scenario 1 (partners) was fraud, and that scenario 10 (insider trading in big market) was not. I was trying to get you to address the other scenarios, as it is my position that both are fraud, along with everything in between.

Except that you're lying through your teeth when you say that those other scenarios are in-between, when in reality they don't speak to the relevant issue at all: the relationship of trust (if any) between the two individuals.

What assumptions does it require you to make?

Let's look at your questions again:

1. Adam and Bob are partners

This is a direct statement about their relationship. There is a partnership agreement there, therefore there is a relationship of trust.

2. Adam and Bob are 50-50 shareholders in X co.

What does this say? This says NOTHING about their relationship. It just says HOW MUCH stock they own, which was NEVER an issue over in the other thread. You're trying to imply some sort of relationship, but the relationship implied is that of an equal partnership. Yet, you're presenting this question as being somehow different than the partnership question. So, they're partners, but they're not partners. Nice little bit of manipulation there.

3. Adam owns 25% and Bob owns 75% of X co.

You're just juggling numbers now. Same situation. Are they partners, albeit not equal partners? If so, how is their RELATIONSHIP different from #1? You don't say; you just change the numbers as if that means anything at all.

4. Adam and Bob each own 33% of X co.

Not only have you changed the numbers, but there are also obviously at least one other person involved. What is their relationship to each other? What is their relationship to the other stockholder(s)? Again, you don't say.

5. Adam and Bob are 2 of 10 equal shareholders.

And those other 8 people are? What are Adam and Bob to each other? Do they have a relationship to each other? Do they have an indirect relationship through a third stockholder? YOU DON'T SAY.

I could go on, but you get the idea. The first and last questions are the ONLY ones that directly specify the relationship (or lack of one) between Adam and Bob. Arguably, #9 is close enough to #10 for the answer to apply, but then again, we have the same issue as exists between #1 and #2: You're apparently suggesting a difference in relationship without specifying what that difference is, and based on that, we cannot automatically apply my answer to #10 to #9.

Those eight questions say ABSOLUTELY NOTHING WHATSOEVER about the relationship between Adam and Bob, and throughout the other thread I insisted that it was this relationship that was important&mdash;in fact, your very reason for posting this list was to purportedly examine the dynamics of this relationship! And yet eight of them make NO REFERENCE AT ALL TO ANY KIND OF RELATIONSHIP WHATSOEVER!!!

Moreover, with all the times I've pointed this out to you, for you to come in yet again and completely ignore this makes you, yes, a LIAR!!!

No, you concocted some BS arguments to avoid answering my questions because they logically showed your position to be in error. That is exactly like refusing to answer the questions.

You CLAIM it's BS, but you don't say why. I claim your questions are BS, and I DO say why. Which one of us is the better skeptic?

And you still haven't answered them.

Bull$#!7. You're just a liar who's trying to weasel out of the fact that you set a trap for me and I didn't fall for it.

[Zep]

Shane - put the ball peen hammer down. Remember we spoke before about how calling people liars, whether they may be or not, is hardly likely to win them over to your point of view?

Thanz, can we do without the ad homs aimed at Shane. Unnecessary.

Both of you have excellent points to make. Let's not spoil it by turning it into a barroom brawl.

And why am I playing mummy here? Stuffed if I know... :D

[Thanz]

Thank you Zep for being a voice of reason.

Shanek -

The relationship between Adam and Bob is as follows:

In situations 1-5, both Bob and Adam were founders of the business (with or without others), but Adam was always the operations guy while Bob was simply a money investor.

In 6 - 10, Bob is an outsider wanting to buy into the business. In 6 and 7, Bob has been over the books and it is a private sale. In 8-10, Bob has been over the public filings of the corporation.

In all of the situations, Adam is aware of the cancellation of the Acme business and that it will have a devastating effect on the company. In all of the situations, Adam keeps this info to himself.

So, with this information, can you address each situation?

[Suddenly]

Originally posted by Thanz
Thank you Zep for being a voice of reason.

Shanek -

The relationship between Adam and Bob is as follows:

In situations 1-5, both Bob and Adam were founders of the business (with or without others), but Adam was always the operations guy while Bob was simply a money investor.

In 6 - 10, Bob is an outsider wanting to buy into the business. In 6 and 7, Bob has been over the books and it is a private sale. In 8-10, Bob has been over the public filings of the corporation.

In all of the situations, Adam is aware of the cancellation of the Acme business and that it will have a devastating effect on the company. In all of the situations, Adam keeps this info to himself.

So, with this information, can you address each situation?

Just wanting to give shanek a hint.

It is always fraud absent permission from the shareholders (or ownership in a non-corporate form.

Padilla even seems to agree with this. Read section 2 of the article you keep linking too. This is where he lays out the arguments he is refuting. He is arguing for the right of shareholders to allow insider trading if they want it.

2 Insider Trading as Agency Problem: Recalling the Argument

Following Henry Manne's defense insider trading (Manne 1966), several authors have developed several counter-arguments to justify a public regulation of insider trading. With the development of information economics and the analysis of markets with asymmetries of information, several authors have argued, based on this literature, that the decision to allow insider trading should not be left in the hands of corporate shareholders.


This issue is a matter of basic agency law, and it really has no effect on the question of whether insider trading should be illegal. It doesn't even effect whether allowing insider trading is a good idea. All it does is recognize the nature of the principal-agent relationship, and the rather comprehensive duty of loyalty owed by an agent (director/officer/whatever) to a principal (shareholder).

[shanek]

Originally posted by Thanz
The relationship between Adam and Bob is as follows:

In situations 1-5, both Bob and Adam were founders of the business (with or without others), but Adam was always the operations guy while Bob was simply a money investor.

In 6 - 10, Bob is an outsider wanting to buy into the business. In 6 and 7, Bob has been over the books and it is a private sale. In 8-10, Bob has been over the public filings of the corporation.

In all of the situations, Adam is aware of the cancellation of the Acme business and that it will have a devastating effect on the company. In all of the situations, Adam keeps this info to himself.

So, with this information, can you address each situation?

If that's the case, then I've already answered it several times over and it should be easy to apply my answer to each of your situation. Where do Adam and Bob have a relationship of trust? In 1-6, they do. In 6-7, they are attempting to establish such a relationship. In 8-10, they apparently never even meet, so no such relationship could be said to exist. So, again, your "gentle gradation" is nothing of the kind. You're just trying to hide the kind of relationships I've already talked about among irrelevancies.

Besides, you yourself said that there was no formal relationship between X Co. and Acme, so there really is nothing to do to a complete outsider like in 8-10. Arguably, there's nothing really to be done with 6-7. Since there is no formal relationship, there's nothing to report; Acme is just a company that happens to do business with X Co. and has decided to take its business elsewhere. Anyone with any business sense knows that large clients can leave at any time; it's a risk they always take when purchasing a stock. Given that there's no formal arrangement, why should Adam be either forced to reveal this information to Bob or prohibited from selling stock to Bob in any situation other than the trust arrangement in 1-6?

Well, anyway, thanks for stringing me along like that...It was fun. :rolleyes:

[Clancie]

It looks like Stewart -is- guilty of insider trading (which they didn't charge her with) and also of lying to investigators (which they did charge).

That said, its ridiculous to think she could spend 10 years in prison if she's found guilty. (For $40,000 ???? While so many, who do so much worse, continue to go scott-free????)

But, fortunately, I think she will be acquitted....or at least that the judge, who seems partial to the defense, will give a greatly reduced sentence.

The whole thing is such a waste of taxpayer time and money.....

[Thanz]

Originally posted by shanek

Given that there's no formal arrangement, why should Adam be either forced to reveal this information to Bob or prohibited from selling stock to Bob in any situation other than the trust arrangement in 1-6?

Just so I understand, you are not saying that fraud can only exist between people that already trust each other. That would be illogical and contrary to what I think you stand for.

Therefore, I think that you are saying that you only see a duty of disclosure in cases where there is a pre-existing trust relationship? Is that right?

On the assumption that I have summarized your position correctly, I ask you to consider that the non-disclusure is a passive misrepresentation of the state of the company. He has presented a set of financials which he now knows are not indicative of the future of the company. The impression given is one of prosperity, when he knows this isn't the case. Isn't this a lie? Isn't the hiding of this material fact a fraud, no matter who it is perpetrated on?

I could accept your argument if Acme cancels their business a week after the deal. Caveat emptor. But when the transaction is based on information that one person knows to be false and the other person cannot reasonably be expected to know unless told by the other party, doesn't that look like fraud?

[shanek]

Originally posted by Thanz
Therefore, I think that you are saying that you only see a duty of disclosure in cases where there is a pre-existing trust relationship? Is that right?

It depends on the nature of the information, of course, but in the case you presented, yes. I don't think companies should be forced to reveal their day-to-day business communications with their clients to anyone who says they want to buy a stock. Talk about opening the door to fraud and espionage! Want to know who the competition's dealing with? Purchase one share of stock and force disclosure! Want to know if their big contract's going south? Purchase stock and force them to tell you!

On the assumption that I have summarized your position correctly, I ask you to consider that the non-disclusure is a passive misrepresentation of the state of the company. He has presented a set of financials which he now knows are not indicative of the future of the company.

Wait a minute, now you're changing things again! In the first sentence, you said it was "passive misrepresentation," but in the next sentence, you said that he presented financials he knows were not accurate&mdash;an active deception! Those are two completely different things.

I could accept your argument if Acme cancels their business a week after the deal. Caveat emptor. But when the transaction is based on information that one person knows to be false and the other person cannot reasonably be expected to know unless told by the other party, doesn't that look like fraud?

No. No one should be under any obligation to speculate as to what the loss of a client may or may not mean for the future of the company to anyone who comes along claiming they want to buy stock. Clients come and go, even big ones. What your "solution" WOULD do, on the other hand, is, in addition to the fraud and espionage I mentioned above, create an unnecessary panic. Yes, they're losing a big client, but that doesn't mean they won't gain another big client, or a lot of little clients, and end up making up for it. What you have suggested happens all the time, and it usually doesn't create any major problems, certainly few if any long-term problems. But by forcing them to disclose the bad news, you create a panic, and then the stock really does tank and people really do lose their shirts.

What you are suggesting is extremely harmful and defies all business sense.