In order to understand the need for regulations in business practices, you need to know which big insider trading scandals rocked companies the most.
Despite being instrumental in helping the USA economy to grow so big, New York Stock Exchange receives quite a lot of hate because of the regulation loopholes it has and the negative incidents that have happened because of those holes. The basic principle of stock trading is that the companies and the investors will have a symmetry of information and they will try to act rationally. When a few of the people receives secret, publicly inaccessible information and act upon that to gain monetarily, it is called insider trading. Even though it is forbidden in NYSE regulations, people still sometimes get away with insider trading. Even if they are detected later, smaller shareholders had faced irrecoverable losses or they had lost faith in the system.
The incidents and the perpetrators will leave you speechless. People like George Soros and Ivan Boesky were considered top experts in their field. Yet they came down to the level of purchasing or selling privileged information in exchange of money. They made huge money out of that too. Ivan was actually fined $100 million even. When Enron was collapsing because of accounting manipulation, even then a few members of the management sold shares just before the prices went down, using their access to information because of their positions. Mathew Martoma is considered to have created the biggest insider trading scandal when the founder of S.A.C. Capital Advisors, Steve A. Cohen managed to make a profit of $276 million based on Martoma’s suggestions that were based on non-public information.
You can check out Insider Monkey’s 10 Biggest Insider Trading Scandals Ever to Rock Companies to read about other stories of big insider trading scandals.
