The stock market is designed to be a place for people to buy and sell stocks strategically. There are multiple strategies one can employ, like swing trading, where a person buys or sells stock based on the price’s volatility. If you ask your broker or search for such strategies online, you’ll find that most of these methods are based on straight-up prediction and calculated guesses based on public data, such as news articles or financial reports.
However, some agents and entities choose to base their buying and selling decisions on confidential information, like a tip from an employee of a business that’s about to be acquired by another company. This shady strategy is called insider trading, and it has serious legal consequences.
According to the Securities and Exchange Commission (SEC), you could pay up to $25 million in fines if you end up convicted of insider trading. Although you can call a Salt Lake City lawyer to help you build your defense, or a bail bond agent to help you get out of prison, some cases were found to be so serious that defendants were denied bail.e
If that’s not enough warning about the consequences of this crime, take a look at the stories of history’s biggest insider trading offenders.
From Cooking Royalty to Felon
Known for her homemaking and cooking shows and books, and now an owner of a media network bearing her name, Martha Stewart is the last person you’d suspect of committing a crime. But her five months of jail time changed a few fan opinions. The television personality was also a successful businesswoman who had multiple investments, one of which was in a biotechnology firm called ImClone.
The company’s CEO, Sam Waksal, found out that the new cancer drug they were supposed to market wasn’t going to get approval from the U.S. Food and Drug Administration and called his broker to sell all his stocks. Based on articles from The Washington Post and New York Magazine, Waksal encouraged his family to sell their shares, too. The broker, who was also advising Stewart, notified her about the CEO’s decision, according to a paper from Liberty University covering the incident. As such, she sold over $228,000 worth of stock in the company before the rejection.
The SEC immediately caught wind of this scandal and arrested Waksal in 2002. The commission, along with the Justice Department and Congress soon found out about Stewart’s involvement and opened a case against her. Though she may have been accused of insider trading, she eventually got convicted for obstruction of justice after giving false statements to investigators. She was found guilty in 2004 and served a five-month jail sentence. Stewart has since returned to her post as director of her media company.
A $60-Million Blunder
Investor Raj Rajaratnam went on a streak of great deals throughout the ’80s and ’90s, which promoted him from lending officer to president of his former employer Needham & Co. Around 1997, he decided to expand his financial talents by putting up his own company, Galleon, which had successful investments in tech — as evidenced by the $1 billion net worth he had back in 2009. However, this was also the year that ended his career.
He was accused, along with 19 other individuals, of using confidential information about big public companies like McKinsey, IBM, Goldman Sachs, and even Google. This insider trading scheme earned them around $60 million, according to Time Magazine. While Rajaratnam’s lawyers stressed that Galleon used public information from press releases and public financial records, the investigators discovered incriminating wiretap recordings and electronic records of Rajaratnam and his companions with insiders in different companies. He was found guilty in 2011 and was sentenced to 11 years in prison, on top of forfeiting more than $53 million in earnings and paying a $10 million fine.
Column, Sell, and Cell
Many moneymakers tuned in to R. Foster Winans’ “Heard on the Street” column from the Wall Street Journal in the ’80s, as his opinions of the market were often correct. However, he was met with an insider trading rap when he shared information from his report to multiple stockbrokers before he published it.
These agents allegedly paid Winans a combined amount of $31,000 from their earnings for his leaks. The Supreme Court was split 4-4 in considering whether it was a case of insider trading or not. However, he was still convicted of federal mail and wire fraud and served nine of his 12-month sentence in 1988. He is now the president of his own publishing company.
Insider trading is still a considerable problem in Wall Street, according to studies mentioned in a report by CNBC. The media company found that various financial institutions continue to make decisions based on non-public information about government programs. But if there’s anything to learn from the stories mentioned above, it’s that the law always catches up on corruption one way or another.