Insider trading occurs when a person with material, nonpublic information about a publicly traded firm makes purchases or sales of the company’s stock. Throughout the United States stock market’s long history, many people have used confidential information to their benefit. William Duer is widely acknowledged as the pioneer of insider trading on bank stocks. Duer joined Alexander Hamilton’s Treasury Department in 1789 as an assistant secretary after being hand-picked for the position by Hamilton himself. When it came out six months later that he had been making trades in the stock market based on confidential information, he resigned.
Even though the Securities and Exchange Commission (SEC) has safeguards in place to protect investors from insider trading’s ill effects, the subjective nature of investigations into insider trading makes it difficult to discover instances of the crime.
That’s why it’s not uncommon for news of insider trading to generate heated discussion and even controversy. Reports of insider trading tend to get a lot of attention in the media, especially when the accused is a public figure with a significant amount of public credibility at stake. Here are five cases of insider trading that made headlines between the early 1900s and now.
Mathew Martoma scandal
The Mathew Martoma scandal was a financial scandal involving the former SAC Capital Advisors LLC portfolio manager Mathew Martoma. In 2012, Martoma was charged by the U.S. Department of Justice with securities fraud and insider trading related to his involvement in a scheme that netted SAC Capital Advisors approximately $276 million in illegal profits. According to the SEC, Martoma made use of material, nonpublic information about the clinical trial results of an experimental Alzheimer’s drug from pharmaceutical company Elan Corporation plc to make trades in the securities of Elan and Wyeth.
Martoma was found guilty on all charges and was subsequently sentenced to nine years in prison. In addition to his prison sentence, Martoma was ordered to pay more than $9.3 million in fines and restitution. The Martoma scandal is one of the largest insider trading scandals in U.S. history and is widely seen as the beginning of the end of SAC Capital Advisors LLC, which eventually pled guilty to wire fraud and other violations and agreed to pay a record $1.2 billion penalty.
Albert H. Wiggin’s Collected Works.
Chase National Bank CEO Albert H. Wiggin was revealed to have shorted over 40,000 shares of his own company during the stock market crash of 1929. Wiggin had a personal investment in the company’s failure and conducted covert operations using shell companies controlled by his family. Shorting one’s own company’s stock was quite allowed at the time. At the height of the 1929 market meltdown, when many investors sold their Chase National Bank stock at once, Wiggin realized a morally justifiable profit of nearly $4 million.
The bank has agreed to pay Wiggin a pension of $100,000 per year for the rest of his life since he generated substantial profits short-selling his own company’s stock. He chose to turn down the pension after hearing the public and media’s reactions.
Wiggin’s notoriety didn’t save him from the widespread fraud that led to the passage of the Securities and Exchange Act of 1934. The plan aimed to strengthen the resilience of the financial system while simultaneously making it more accessible. Section 16 of the Act has been dubbed the “anti-Wiggin section” due to the strict measures it takes to prevent and penalize insider trading.
Mr. Ivan Boesky
American stock trader Ivan Boesky became famous in the 1980s for his involvement in an insider trading scandal. It seems that Boesky wasn’t the only one who knew about the planned takeovers by corrupt corporate leaders at major U.S. investment banks. Boesky launched his stock brokerage firm, Ivan F. Boesky & Company, in 1975 and soon amassed tremendous wealth through risky bets on company takeovers. Boesky was sued by his business partners in 1987 because the partnership documents were forged. The SEC has launched an investigation as a result of this. Evidence suggested he had been basing his financial decisions on secret data.
Boesky is notorious for bribing the mergers and acquisitions bankers at Drexel Burnham Lambert to gain access to the firm’s confidential deal information. Boesky made money during the 1980s when he was able to take advantage of the widespread practice of merging and acquiring businesses. Included are corporations such as Getty Oil, Nabisco, Gulf Oil, Chevron, and Texaco.
Financial expert Michael Milken was brought to justice with the help of evidence provided by Boesky, who had turned government informant. In 1986, a judge imposed a 3.5-year prison term and a $100 million fine on Boesky for insider trading. The SEC has barred Boesky from ever working in the securities sector again, even though he has just served a two-year sentence.
Bibliography of R. Foster Winans’s Writings
“Foster, R. Winans used to pen the “Heard on the Street” column for the Wall Street Journal when he was younger. Winans regularly featured a new stock in his writings, which influenced the price. Winans agreed to share the name of the stock he intended to write extensively about with a group of stockbrokers. Immediately before the release of the piece, brokers would rush to buy up shares of stock. The brokers allegedly compensated Winans after realizing a profit thanks to his counsel.
The SEC was able to locate Winans in the end. Although the situation was complicated, Winans’s writing was merely an expression of his viewpoint and did not reveal any confidential information. Since the SEC felt that the Wall Street Journal, and not Winans, was the rightful owner of the stock information used in the article, it held Winans responsible for the content.
In December 2001, the FDA rejected Erbitux, a revolutionary cancer medication developed by ImClone. Getting this drug approved was important to ImClone’s future success, thus the corporation spent a lot of money doing so. The stock price of the corporation plunged as a result of this news. Samuel Waksal, CEO of Erbitux, and his family were spared the economic devastation that befell other investors. Soon after the FDA’s announcement, the SEC discovered that Waksal had attempted to sell his stock and had pressured other executives to do the same.
American retail magnate Martha Stewart sold out over 4,000 shares in the company just days before the statement was made. As a result of the stock price not falling, Stewart made about $250,000. In the months that followed, share prices fell from nearly $60 to a little above $10.
Stewart claimed she had already placed the sell order before it was disclosed that broker Peter Bacanovic had told Stewart that ImClone stock was poised to plummet drastically. Former CEO of Martha Stewart Living Omnimedia resigns. Since his imprisonment in 2003, Waksal has paid close to $4.3 million in penalties and incarceration costs. Stewart and her broker both faced and received insider trading charges in 2004. Stewart was given a minimum of five months in jail and a $30,000 fine.
Famous insider trading cases demonstrate the potential consequences of engaging in illegal activities. They also serve as a reminder that the government takes a hard stance against those who violate insider trading laws. These cases demonstrate the importance of understanding the regulations and laws surrounding insider trading, as well as the potential risks involved in engaging in such activities.