A Case of Insider Trading

"When a man assumes a public trust he should consider himself a public property. Thomas Jefferson”

The insider trading cases reminds me a reminds about an incident which one of my trusted friend had shared with me. A colonizer bought  a huge agriculture land at very cheap prices which was in green belt (zero construction area) in village Panchayat area. Two months later a fresh town – planning scheme public announcement done by local authorities to declare that area as yellow belt (residential use) and corporation area expanded to bring that land within city planning area. Resultantly, caused the price hike of properties of the area upto 100 times ! 100 times profit in two months to that clever colonizer and was the loss to those villagers who sold their precious land at cheaper prices due to lack of important information. So, information about change was the key to decide the winner in the game. What you call this? Colonizer  had previous information about public announcements! You may be true. This is what we call as ‘ Insider trading’ for stock market business. In this article, we will discuss the nature  of insider trading.   

Referring to recent controversy of world’s biggest scam of insider trading, Jury’s verdict has come as shocking news to corporate world.  This bussiness 'Jzar' got unfavorable order of imprisonment of Jail 20 years. It is really difficult to accept that a man  who was achieved 15^th rank in IIT entrance exams, graduated from Howard University and who was virtually a synonym of success, got into legal trap of insider trading. Still there is diverse opinion on the innocence of  this business magnet knows across the globe. Some says he is guilty while others do not agree with this. However, he is found  guilty on the basis of chain of circumstantial evidences. Most of us who look toward him as real business role model, can feel the pain of the tragedy of a real genius, 'the bussiness Jzar'.   The first round of trial is over and he may prove innocent in the higher rounds till it get final Judgment from Supreme Court. May god help to get justice to all.

Insider trading is actually a civil and criminal offense. It is defined as “the use of private information to do transactions in shares”. It is a phenomenon where a person having   valuable information about any future dealing of a company uses such information to maximize gain  to  himself or  any other entity. Such gain is considered as unjustified gain because it violate the principle of level playing field for other shareholders.  India to has the law for this namely SEBI (Prevention of Insider Trading) Regulation Act, 1992. SEBI has set some examples where Insider trading cases were caught  and SEBI filed civil and criminal case well. The offenders are mostly high profile people in insider trading case like Directors, top notch employees and consultants. The definition of insider is wide and open to catch any ‘connected person’.

Evidences for insider trading is usually indirect and circumstantial evidence. Since, the insider knows that he is committing some thing which not only illegal but an immoral act as well, hence, he take all possible precautions. The information is such a valuable and sensitive thing that it can be passed in spur of second and people makes millions to use this.  Things happens at lightening speed. The information is intangible. It can be passed on mobile, SMS, paper slip or even through code language. It is very difficult to find real direct evidence insider trading. So, investigation agencies work on circumstantial evidences, timing of communication, transaction taken place, past history of investment and patterns, past relations among ‘connected person’, accrued benefits to inside trader etc.

For example, a person of high repute come out of meeting room discussing sensitive investment deal and make a phone call to his friend and thereafter his friend immediately make some huge investments in a very short time and gain exceptional profits overnight. It raises eye brows of investigation agencies to put responsible officials under scanning. This is what the circumstantial evidence. Indian evidence act accepts the circumstantial evidence.

Market moves are truly unexpected. Even the most experienced players get surprises. Insider trading is bolt to free flow  of fair market speculations and very unfair to true investors, analyst and people who trust on company. It is more of a question of moral values of an individual. The integrity comes under scanning. I wonder how a single mistake the make life miserable and ruin a long standing corporate career.

I like to conclude this article by an old saying “Money is lost nothing is lost but prestige is lost, everything lost". Management community know the very basic fundamental of business ethics ‘I swear to maintain confidentiality by all means and at any cost’. One who live this oath will certainly feel the work satisfaction and self-pride. Values have intrinsic value and extrinsic results. Insider trading can be effectively restricted through voice of inner self.

Regards

Ambrish