Exam (elaborations)
BUS 5115 Unit 4 Discussion Assignemnt
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A guide to Discussion Assignment Unit 4
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Insider trading is defined as the exchange or trade of a public company's stock based on non-public, material information about that stock (Ganti, 2022). Insider trading could be legal or
illegal depending on how and when the insider makes the trade. An insider is someone with
access to non-public material information which could be someone in management or has
relations with someone in that firm (Ganti, 2022).
There are two terms above that need to be defined when analyzing the cases given. The first is
non-public information which implies all information that has not been disclosed to the public.
The second is material information which is that if used will directly impact the decision to buy
or sell the security. If an insider wants to trade legally, they should conform to SEC rules and
regulations. The Securities Exchange Act of 1934 has issued the steps followed to legally
disclose the transaction of a company's stock (Ganti, 2022).
The first case is of Pete Rose, who was a former player and then a coach for the Cincinnati Reds.
He admitted betting that he bet on his team to win and no physical proof has been provided to
suggest otherwise (Rapp, 2002). However, he had insider information that should not be used for
betting. I believe he has gotten punished appropriately as he was banned for a lifetime ban from
baseball including the baseball hall of fame (Rapp, 2002).
The second is the Enron case, where the managers used the information they have to sell their
stocks ahead of time before the information became public. This was a clear case of illegal
insider trading. They had non-public material information that if the public had known they
wouldn't buy those stocks. They profited from the information they have. This would affect the
fairness of the trading process and gives insiders an unfair advantage.
As mentioned above, the SEC requires directors and major owners of stock to disclose their
stakes, transactions, and change of ownership using several forms that are appropriately
prepared. Disclosing the information is not enough the timing of their transactions also needs to
be recorded and checked.
Illegal insider trading has many negative impacts from ethical, economic, and social aspects
(Macey, 1988). Insider traders will be seen as people devoid of ethical values and for firms, they
will lose credibility and brand value. Furthermore, it will create a lack of trust in public trading
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