Insider Trading
It’s more than
Martha Stewart!
And Enron too!
What is insider trading?
 There are many different definitions
out there of insider trading. The most
encompassing one I have found is
 “The illegal buying or selling of securities
on the basis of information that is
generally unavailable to the public.”
 The question ‘What is insider trading?’
was asked a lot in the 1970’s and 1980’s.
 In the 1980’s exposes were written to
reveal corporations and employees
guilty of insider trading to the public.
 Great Britain also has laws against
insider trading.
Why the interest in large
corporations?
 Many people generally distrusted big
business due to:
 Changes in the business environment:
 Addition of computers/automated
machinery into the workplace.
 Poor economy, resulting in less job
security.
 High profile cases involving large
corporations. Even if the cases did not
involve insider trading, attention was
called to the corporations.
Additional causes for
concern:
 Science fiction movies where things
are taken over by computers/robots
 Idea that all workers were going to
be replaced by robots.
 Conspiracy theories regarding the
increased use of computers
 “Big brother is watching you.”
 “They’ve got you in the computer
now, you’re part of their system”.
A brief case study:
 In November 2001 the Securities and Exchange
Commission charged 15 individuals with insider trading
in the shares of Nvidia Corporation, a California maker
of graphics chips. According to the SEC, in March 2000
Nvidia's president used e-mail to inform employees the
firm had won a major contract to supply chips for
Microsoft Corporation's new Xbox video game system.
News of the contract was not announced to the public
until five days following the employee e-mail. The time
lag allowed the 15 individuals 11 employees plus 4
people tipped by the employees to profit by purchasing
Nvidia shares prior to the public announcement of the
contract. The case was relatively unusual in that the
individuals charged with insider trading were low-level
employees rather than high-level executives.
The Martha Stewart Case
 Contrary to popular belief, Martha was
not charged with insider trading.
 Her lawyers claim that accusations
made by the court gave the
impression that she was guilty of
insider trading although she was
never charged.
The ImClone case
 So the Martha case might be more
appropriately called the ImClone
case.
 Sam Waksal, the founder of
ImClone, actually plead guilty to
insider trading.
The Enron Case
 Richard A. Causey and Jeffrey K.
Skilling were charged with more
than 30 counts of fraud and insider
trading dating to 1999.
 Richard a. Causey was the chief
accountant for Enron.
 Jeffery K. Skilling was the
protégé of Kenneth Lay, the
chairman of Enron.
 Kenneth Lay was never charged
with insider trading.
The Enron Case
continued..
 Skilling, Lay and Causey still claim
they knew nothing of the scheme
devised to bury corporate debt and
to inflate Enron’s earnings.
 None of their cases have gone to
trial.
 There have been cases brought
against Enron for things other than
insider trading.
Yes, more on Enron…
 Linda Lay, Ken Lay’s wife, is under
investigation for insider trading.
 She personally arranged for the
sale of half a million Enron
shares in the name of the Lay
Family Foundation on Nov. 28,
2001. This happened just days
before Enron fell.
Granite State Bankshares
 Prior to the merger of Granite Bank and
Chittenden Corp. It is alleged that Kevin
Hobbs, the administrative vice president
and director of internal audit at Granite
State made 19 transactions in October
and November of 2002.
 As a result, he made a profit of $95,109
from his knowledge of the merger
before it became public, according to
the SEC complaint filed Tuesday
November 16 in U.S. District Court in
New Hampshire.