Examples for illegal insider trading

This article written by Akshit GUPTA (ESSEC Business School, Grande Ecole Program – Master in Management, 2019-2022) presents famous examples of insider trading seen across financial markets.

As discussed in the previous post, Illegal Insider trading refers to “buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, on the basis of material, non-public information about the security” as defined by the Securities and Exchange Commission (SEC) in the United States of America. Insider trading can be legal or illegal depending on the time the information is passed on to any unrelated party or when it is used to execute the trades.

Ivan Frederick Boesky (1987)

Ivan Boesky, a stock trader in the US, is infamous for his role in an insider trading scandal that shook the American markets during the late 1980s. Boesky started a stock brokerage company named Ivan F. Boesky and Company during 1976 and used to speculate on corporate takeovers. Within a span of few years, his company started generating huge profits and Boesky became a renowned broker. He received new buy-in investments from many partnership agreements he signed. But later, Boesky was sued by his group of partners for deceptive clauses stated in their partnership agreement. The case came under the scanner of the SEC and eventually Boesky was convicted of profiting from M&A takeovers based on privileged inside information from corporate insiders leading him to an imprisonment of 3 years and a fine of $100 million. He then became an aide to the SEC, helping the staff in cracking other high-profile scandals taking place in the US.

Martha Stewart & ImClone (2001)

Martha Stewart is an infamous investor who was convicted of insider trading by the SEC in the early 2000s. Stewart owned the stocks of the biopharmaceutical company, ImClone Systems. The Foods and Drugs Administration (FDA) rejected ImClone’s experimental cancer treatment drug, Erbitux. Stewart had the privileged access to this information by her broker before it came into the public domain and acted on it. By selling the stocks before the news became public, she was able to avoid losses nearing $50,000 that she would have incurred otherwise. Eventually, Stewart was convicted guilty for trading on grounds of inside information and was sentenced an imprisonment of 5 months.

Robert Foster Winans (1984)

Robert Foster Winans was a former journalist at the Wall Street Journal and penned the influential “Heard on the Street” column for the newspaper during early 1980s. His column in the newspaper had the power to move prices for the stocks he was mentioning in his column. He was convicted by the SEC for supplying confidential information about his upcoming articles to brokers who used to trade the shares on his behalf. The case was complex to crack due to lack of concrete evidence in the favour of insider trading being followed by Winans, but in the end, he was convicted of stealing confidential information belonging to the Wall Street journal and was sentenced to an imprisonment of one year.

Raj Rajaratnam (2009)

Raj Rajaratnam was the founder and former manager of the hedge fund group named Galleon Group based out in New York founded in 1997. Owing to his successful investments in healthcare and technology industry, Rajaratnam grew up the market ranks very quickly and gained a huge reputation in the global markets. He made ties with several corporate executives from leading companies and received insider tips and information on a regular basis.

Rajaratnam was convicted of making illicit profits amounting to $60 million by trading on non-public material information and was found guilty for 14 counts of securities fraud. He was sentenced to 11 years of imprisonment and a penalty amounting to $10 million. His prison time was the longest term given for crimes involving insider trading and was a wake-up call for all the individuals involved in such a vicious cycle.

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About the author

Article written in January 2021 by Akshit GUPTA (ESSEC Business School, Grande Ecole Program – Master in Management, 2019-2022).