Insider Trading
What is "insider" trading?
The essential principle of socialism, applied
to the physical realm, is that property belongs to the "public"
regardless of who undertook the effort to create the property. The insider
trading laws are its intellectual corollary; if government can take
control of the physical creations of your body, it is no great stretch to
expect it will take control the intellectual results of your mind, i.e.,
knowledge. The result is the socialist corruption of the free market known as
"insider" trading. The idea that knowledge gained within a company, about that
company and its products, belongs to the public, because that company sells
its shares to the public.
Who does "inside" information belong to?
In today's division-of-labor society, it is inevitable that some
individuals will discover and act on information before (and better than)
others do. Such differences are also the inevitable consequence of the fact
that the human mind is individual by nature. Just as there's no such thing as
a "collective mind," there is no such thing as "collective information." To
grasp information an individual must expend effort; he must either create the
information or discover it. After he does this, he may well choose to trade it
with others or give it away in some act of charity (just as he may do with his
tangible assets). But he should not be obligated (nor compelled by law) to do
these things. Morally, he doesn't "owe" his knowledge to anyone. The primary
moral obligation rests on others: they should be obliged to keep their hands
off such assets and not destroy or steal them (or hire government to do so).
Contrary to the Marxist dogma preached by the SEC, "inside" information does
not "belong" to the "public" — or to the government. If that were the case,
we'd have public ownership of the means of production (socialism) —
because in today's "information economy," information is a crucial
means to production.
"Inside" information about any company — its trade secrets, strategies, etc —
are assets that belong solely to shareholders (and to
shareholding-executives too, if other shareholders approve of such a policy).
Only a firm's owners have the moral right to decide how their employees can
use such information. Government-bureaucrats should have no say in the matter
as no fraud is involved—and as long as a firm discloses its
insider-information policy no fraud is involved.
By what right does the SEC prevent a company's employees from benefiting
from the knowledge they've gained by working in that company? The answer
is that the state has no such rights whatsoever—and it acts immorally when it
proceeds to act upon those so-called "rights."
How may firms use "inside" information?
Under the principles of agency law, firms may use "inside"
information as employee compensation; or the company through its bylaws can
restrict its use (only then can "insider trading" be punished by owners as a
breach of a contractual obligation). In a free-market, investors choose the
kinds of companies they want to invest in (rather then have the SEC choose for
them): a company which allows insider trading, or a company that prohibits it,
or a company somewhere in-between.
Isn't "Insider" trading an act of fraud?
"Insider trading" is a victim-less crime. It's an innocent act that should
be legal. But worse than being a victim-less crime, "insider trading" is a
crime that has never been defined in law. (1) Thus even though "it" is
illegal, there is no real way to know if one has engaged in "it." This permits
regulators to persecute whomever they wish – at anytime – for whatever reason
they choose. To face jail time for an undefined crime is characteristic of a
dictatorship – not a free society. There are legitimate laws against
securities fraud – but, "insider" trading, per se, is not fraud. The
government should prosecute fraud, but only by an objective, legal process
in a court of law—and not an arbitrary, back-room regulatory process
by a "rule of politicians." The legal burden should be on the government — or
the allegedly aggrieved party—to prove that a drug is dangerous and that its
distribution would violate the rights of others.
What is the philosophical root of the insider trading laws?
At the fundamental root of the false claim that the creators of knowledge and
wealth owe it to the non-creators is the anti-American, ethical code of
altruism — of allegedly-noble self-sacrifice. In Marxist terms this means
that wealth and information must be plundered "from each according to his
ability" and distributed "to each according to his needs." The producer has
the ability, i.e., "greed"—the "public" has a need—the
inalienable rights of the producer be damned.
References:
(1) "Section 10 of the Securities Exchange Act of
1934 broadly outlawed stock fraud. Eight years later the SEC adopted Rule
10b-5, making the fraud provisions applicable to purchases as well as sales of
securities. Section 10 and Rule 10b-5 became crucial to the prosecution of
illegal insider trading. Neither defines it, however." ("Whispers Inside;
Thunder Outside: A New Hunt Is On For Insider Trading," The New York Times,
June 30, 2002, Section 3, pp. 1&14;).
Related Articles:
The SEC's "Insider
Trading" Witch Hunt Against ImClone's Sam Waksal: Scapegoat for the Sins of
the FDA
The FDA obstructed the launch of a product; then the SEC forced the
termination of that product's primary creator. Yet it's not any regulator but
the creator — Sam Waksal — who faces jail time for helping his family mitigate
regulatory destructiveness. |
