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Insider Trading It’s more than Martha Stewart! And Enron too!

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Presentation on theme: "Insider Trading It’s more than Martha Stewart! And Enron too!"— Presentation transcript:

1 Insider Trading It’s more than Martha Stewart! And Enron too!

2 What is insider trading?  There are many different definitions out there of insider trading. The most encompassing one I have found is  “The illegal buying or selling of securities on the basis of information that is generally unavailable to the public.”  The question ‘What is insider trading?’ was asked a lot in the 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.

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

4 Additional causes for concern:  Science fiction movies where things are taken over by computers/robots  Idea that all workers were going to be replaced by robots.  Conspiracy theories regarding the increased use of computers  “Big brother is watching you.”  “They’ve got you in the computer now, you’re part of their system”.

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

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

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

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

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

10 Yes, more on Enron…  Linda Lay, Ken 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.

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

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