White-collar crime is an important topic in today's business world. This can include a number of illegal actions, but in the financial sector, insider trading is predominant. Insider trading includes illegal buying and selling of securities as well as lawful behavior. Company employees are legally allowed to buy and sell stock in their company and report it to the SEC (Securities and Exchange Commission). Insider trading means the use of or misappropriation of non-public information. These actions undermine the integrity of investment markets and, therefore, illegal insider trading is considered a serious crime subject to adequate penalties (United States Securities and Exchange Commission, 2013). An example of insider trading would be when an employee who is currently investing in their company's stock comes across confidential, non-public company information regarding future stock price movements. This can be done by any means, including a tippee or accidental conversation. The employee then buys or sells shares using this information. This gives this investor a great advantage over other investors. However, the legal type of insider trading is slightly different. Without any sort of fraud or misappropriation of information, there are no repercussions. Employees can trade company stock and notify the SEC when they do so to ensure their trades are reflected. As long as the transactions are not based on non-public or disclosed information that was negotiated, the transactions are considered legal. This article discusses the legal type of insider trading. Many employees commit to investing in their organization's stock, especially if that organization is growing or maintaining its value well. Employees can also receive company stock as compensation. The main objective of investing is to maximize the value of your initial investment. Investors therefore want to make wise decisions based on their research and knowledge of the markets. The question addressed here is: "Is it ethical for a middle manager to buy or sell personal shares of a company when he anticipates an increase or decrease in the stock price based on his experience and his knowledge of his business? » This article focuses on expressing the question "based on experience and understanding of their business". Instead of the more controversial topic of insider trading where one individual tips off another in exchange for some profit, this is an individual using their own knowledge to make trades. Say no to plagiarism. Get a tailor-made essay on “Why Violent Video Games Should Not Be Banned”? Get an Original Essay Insider trading laws are constantly under review, even today. A law regarding the information one can receive states: "...regardless of their motivation or profession, when they come into possession of important information about the company which they know to be confidential and If they know or should know that it comes from a company insider, they must either publicly disclose this information or refrain from doing so. trading” (Eisenberg, Hastings and Porter, 2016). This law basically states that when an employee makes a transaction, they must report it to the SEC. Some cases can become legal problems, particularly whenEmployees of a company or even their friends, family or other "tippee" use confidential business information to buy or sell shares. It is also illegal for an organization's business partners to receive market information in exchange for services. There are also specific laws relating to non-business relationships and how these relationships can determine whether a person is guilty of insider trading (United States Securities and Exchange Commission, 2013). Insider trading is more prevalent today than ever before, with nearly 25% of trades originating from inside information (United States Securities and Exchange Commission, 2013). Insider trading causes the most tension with the government, since most actions are illegal. However, the question discussed addresses another aspect of insider trading. Tension exists when one trading party has an advantage, and therefore a greater chance of making more money, than another. This benefit is based on knowledge and experience which is in no way illegal. However, when an employee of a company has great knowledge of their company and great experience working there, should they be able to use it to trade their shares? This is where tensions arise. Some people believe that it is not fair that some people use this type of information, even if it is not misused, for their personal advantage within the stock markets. Determining who exactly would be affected by these insider acts requires assessing the stakeholders. The stakeholders that would be part of this ethical dilemma would be employees (investors using their experience), other investors (without the same experience), the organization as a whole, the government, the economy and financial institutions. Stakeholders directly affected are considered primary stakeholders. The main stakeholders would be employees who actively engage in insider trading as well as investors who trade but do not have the same knowledge. On the other hand, some stakeholders are considered secondary because they are not directly affected by the actions or decisions in this situation. The secondary stakeholders would be the organization, government, economy and financial institutions. The main stakeholders are the employees of the companies who gain knowledge and experience through their years and work done in that particular company. The business vision in question is not specific, as it differs for each individual as well as the business. Another primary stakeholder would be other investors in the market, whether other employees of the same company or other investors in the same stocks. These people are influenced by the advantage that employees have using the company's experience. These employees have the upper hand on whether the stock price will fall or rise, whereas other investors in the stock market do not have the same type of knowledge. If disadvantaged, investors could lose a significant portion of their investment. Each stakeholder has a significant moral impact when it comes to the ethics of insider trading. For key stakeholders, the employee involved in insider trading benefits from the actions. The employee uses his knowledge or acquired knowledge to improve the value of his stock. Drawing on their experience in the company, the employee will be able to anticipate a rise or fall in the share price and therefore sell or buy accordingly.This will ultimately lead them to either make more money from the stocks or refrain from losing a significant amount if that is the case. This gives the employee some financial stability, provided their vision for the company is useful to them. It is possible that the employee may invest incorrectly and then lose money, which would be detrimental to the employee. But most importantly, it will help the investor increase the value of their shares. The employee also exercises their right to own and trade their personal shares based on their level of expertise. There is no misappropriation or fraud in this situation and therefore the employer has the right to do so. On the other hand, individuals who invest alongside this particular employee may potentially be harmed or benefited, depending on the markets. However, these investors do not have the same exact vision of the company and therefore suffer harm due to their lesser knowledge. These investors might not be able to anticipate an increase or decrease in price and they could end up losing large sums of money if they knew the company better. Moral impacts on secondary stakeholders depend a lot on how financial markets look, given that they could lose or gain money regardless of what a single investor chooses to do. The company would be affected by the decision if the employees and their investments. The company exercises its right to give shares to its employees and to allow these employees to invest. This would benefit the company by adding value to its market share. The economy as a whole can change due to market manipulation, but this topic is not addressed in this specific ethical question. The government is indirectly affected and definitively exercises its rights in regulating the securities market. It is the government's responsibility to seek out and punish illegal behavior in order to maintain an honest market. The government also benefits from policing. The economy would also suffer the consequences, either with harm or with benefit. Different studies show how insider trading affects financial markets. These studies contain two conclusions: insider trading benefits or harms the economy as a whole. Engelen and Liedekerke show in their paper that a reduction in insider trading will in turn reduce market efficiency. However, in actual trading, it is difficult to determine between a type of trading that enhances market efficiency, such as insider trading, or a type of trading that reduces efficiency, such as market manipulation (2007 ). Even with multiple studies and opinions on this topic, it is impossible to determine what type of headlines affect what. Many people draw their own conclusions about the impact of insider trading on the market as a whole. Most agree with the theory that illegal insider trading, or market manipulation, will harm the efficiency of the market and diminish its value. However, the legal type of insider trading fundamentally increases the efficiency and value of the market. There is no fraud or deception, so it occurs as a normal investment would. The economy would benefit from the increase in the value of stocks and currency, or it would be harmed if the value fell. Financial institutions would be affected in the same way as the economy would be – either they would be harmed or they would benefit depending on how the markets perform. Insider trading was explained in relation to the ethical question: "Is it ethical for a middle manager to buy or sellpersonal shares of company stock when they anticipate an increase or decrease in the stock price based on their experience and knowledge of their company? » This type of trading is legal for businessmen, unlike the more controversial illegal insider trading. The term insider trading has been defined as the illegal buying and selling of stocks as well as how company employees can trade stocks legally by reporting to the SEC. However, it is legal insider trading that is addressed. Employees can use their own knowledge and experience to buy and sell personal stocks. Tensions lie within investors over who has a competitive advantage and who does not. Primary stakeholders include company employees who invest in the company's stock using their experience to make decisions as well as other investors in the same stocks who do not have the same type of knowledge about the company. business. The next steps to take are to determine whether insider trading is ethical or not. This document consists of three elements, including: economic outcomes, legal requirements and systems of ethical duties. These three elements are used as steps to reach a conclusion about the ethics of the question asked. The economic consequences of these ethical questions can be described by a certain model. Freidman's model best answers this ethical question. This economic outcome model, also called the shareholder model, emphasizes profits. There are three main points in this model. One says that businesses cannot assume social responsibility. This means that only people, as individuals, can have social responsibility. The second point specifies that employees cannot make the company socially responsible. Indeed, within a company, employees and employers maintain a principal-agent relationship. The employer is the principal who delegates his responsibilities to the agent, who is the employee. Employees, as agents, have the direct responsibility to answer to the principal who is the employer. The agent's responsibility is to conduct his business in accordance with the wishes of the owners or employers. This desire is to make as much money as possible and maximize profits while complying with the law without deception or fraud. The third point is that individuals can have social responsibilities. It is a person's right and choice to take on these social responsibilities, because it is up to each individual to choose what they do in their free time and with their own money. Every stakeholder in the business should be able to choose where and when they spend their money. This does not mean that an individual can make a company socially responsible, because the responsibility of the company is distinct from the individual responsibility of its employees. However, the only social responsibility of a business is to increase its profits while remaining within the bounds of the law, without deception or fraud. If some form of social responsibility generates goodwill as a byproduct of spending leading to increased profits, then social responsibility is beneficial in the long run. This type of goodwill can be defined as the creation of a corporate reputation which is used as an asset in order to create higher value for the company. This makes sense from the shareholder's perspective if the goodwill created by individuals increases the company's profits, provided it correlates with the principal's desires for the company. This economic result modelbest fits the ethical question regarding insider trading. Friedman's model focuses on profits, which are essentially the object of insider trading. The only reason individuals participate in buying or selling stocks is to increase their profits. They can potentially use as much information as possible to give themselves a competitive advantage over other traders to increase their own profits. The employee who transacts and purchases shares is his or her own principal and has the ability to act in whatever manner he or she deems most profitable. Even when the employee receives company stock as compensation, he or she still invests in an attempt to make the most money. In this way, the stock trader can be considered a “business,” since he or she is working to make a profit. This “business” does not need to be socially responsible because it exists to create value for the owners (the merchant). The second point of the Friedman model states that employees cannot make the company socially responsible. This supports the idea that the individual who trades stocks does not need to be socially responsible to others and can use the lessons of their professional experience to make trades. Even if other traders in the stock do not have the same knowledge, the person with the experience should be able to use it to make informed trades according to this model. Social responsibility is not considered within the business world and profits are the most important aspect. Although an individual has the right to have social responsibilities, he or she also has the choice to exercise or refuse this right. This takes into account Friedman's third point in his model. The overall goal is to maximize profits within the limits of the law, without deception or fraud. This ethical question of this legal type of insider trading completes this objective. Insider trading using the company's unique experience actually complements the goal of maximizing "the company's" profits. This type of insider trading also complies with all laws, with the individual only using his knowledge and not participating in any illegal activities regarding stock trading. There is no deception in this case because it is common knowledge that the employee works for the specific company and must comply with SEC regulations and report their business information to the SEC. I consider that the type of insider trading addressed in this ethical question best fits Friedman's model of economic outcomes, primarily because both emphasize profit maximization. I agree with the emphasis on legal profit maximization. Regarding this economic outcome model, insider trading is considered ethical. Insider trading includes various situations and circumstances involving individuals within the business world. Some types of insider trading are illegal and others are not. It all depends on what information is used to trade stocks and where exactly that information comes from. Legality also depends on whether the person buying or selling shares reports their shares to the SEC. Laws enforced by the government are constantly reviewed and changed from case to case, but some have been in existence for several years. The Securities Act of 1933 establishes the requirements that investors must comply with when registering with the government (SEC). The primary form of insider trading is security fraud. This includes a multitude of different situations, including the use of fakeinformation to obtain money or deception from the buyer of a security. Another section states that it is illegal for anyone to exchange a security for a fee without officially disclosing the receipt. There are certain exemptions, such as the accredited investor exemption. This frees those with financial expertise from their own experience and insight to make informed investment decisions. This is decided based on a scale of financial sophistication, knowledge and experience (United States Securities and Exchange Commission, 2013). This would often apply to the employee who trades the company's stock, as this investor has the means to be highly educated and capable of making intelligent investment decisions. This certainly takes into account the legal aspect of insider trading. The government also takes into consideration the information exchanged as well as commercial and non-commercial relationships. This may be considered security fraud if the information is confidential and not public. However, these laws only apply to individuals participating in illegal insider trading. The type of insider trading addressed by the ethical question is considered legal by the standards of U.S. law. An employee using his or her own experience and knowledge to buy and sell personal shares of the company complies with the standards set by the government. This is completely legal according to the law because the information they hold is not technically confidential and could become known to the public. Other employees have access to the same information. This allows employees to legally use insider trading as long as they still report to the SEC. Accredited investors are even exempt from explicitly reporting receipts, given that they have extensive financial expertise in the markets. The type of insider trading addressed in this ethical issue in the paper is the legal type, instead of the illegal type that concerns many other complex laws that do not apply to this situation. Therefore, insider trading as defined herein is deemed not only legal, but also ethical. When employees are faced with ethical decisions, they must use an ethical system based on their personal beliefs or life experiences to make the best possible decision. Individuals can use ethical duty systems, where there are key points that guide difficult decision making. However, these systems all have certain flaws that leave some problems unaddressed. This makes it necessary to consider multiple homework systems to make a fully informed decision by looking at issues from multiple perspectives. All duty systems provide a decent way of determining what duties individuals believe they owe other people, based on rational thought processes. Most of these systems use the principles approach, which looks for some type of underlying universal principles that provide a solid foundation on which to base decisions. The two systems that I like the most and which also apply to insider trading are the principles of universal duties and the utilitarian system. The Principles of Universal Duties are a system of ethical duties that can be relied upon when making a decision when faced with an ethical question. This system is mainly contributed by Immanuel Kant. The main principle of decision making is to never take any action or make a decision that you would not want to see others do or make in the same situation. This principle isethical and focuses on duties. The advantages of this system are that it is universal and it creates respect for people because it is based on the reasoning behind what is considered right and what is considered wrong. All of a person's actions are considered right up to the decision and the consequences of that decision. A guiding principle is necessary to determine right from wrong, because nothing in life is absolute good except a person's good will. This goodwill is very different from the previously mentioned “goodwill” in the business world. An individual's good will takes into account his or her positive intention, beneficial desire, and recognized duty to help others. This is difficult to determine, however, because goodwill is internal and privatized within the individual. The principles of universal duties consist of three moral principles considered categorical imperatives. The first is that people should act only on reasons that they would be willing for anyone in a similar situation to act on. Everyone is treated as a free person, equal to all others, under this imperative. People have a correlative duty to treat others in the same way they expect to be treated. This creates a universality in which respect applies to everyone and respect flows both ways. The second imperative is called the principle of ends. This principle states that each individual must treat others as ends worthy of dignity and respect. People should never be treated as mere means to another's ends. This highlights the fact that every person deserves dignity and moral worth. Humans should never be exploited or manipulated. The last imperative is called the principle of autonomy, asserting that every rational being is capable of considering itself the author of a universal law. There is no need for an external authority. Examples of external authorities would be any god, government, culture, or any being that determines moral law. Rational beings are considered capable of discovering moral truth for themselves. This imperative focuses on a person's inner motivations rather than the consequences of their outer actions. However, this rights system has its flaws. There is no measurement tool to compare. Moral truths and rights will conflict from one person to another. It can also be argued that not all beings are rational and that some humans are not capable of drawing conclusions about moral truth. These flaws are the reason why we cannot rely on a single system of ethical duty. The second system of ethical duty is called the utilitarian system. The main point of this system is that an individual should not take any action that would not result in more net benefit than harm. This must be practiced within a society or community of which one is part, including businesses. A person should try to maximize positive outcomes or minimize harm. The main contributors to this system are Jeremy Bentham and John Mill. These founders realized that the law had value in society. They recognized that respect for the law is a fundamental requirement for a productive and pleasant society. This also means that some laws can be manipulated and misused for individual purposes, particularly by powerful central authorities such as the government. Both Bentham and Mill wanted a way to evaluate which laws were good and therefore should be obeyed, as well as which laws were not good and therefore should not be obeyed. They discovered thatutility can be this means. Individuals are governed by the concept of increasing pleasure and decreasing pain. A party in a community is a group of individuals who associate freely. The fundamental principle of the utilitarian system is that action should be taken to create the greatest net good for all members of society. This system is teleological and focuses on the consequences and end results of the decision or actions taken rather than the method used to achieve the end. This means that an individual must examine and compare all the consequences of the possible outcomes of a certain decision and choose the one that most benefits the members of a society. There should be a better balance between benefits and costs for everyone involved. There are also flaws in this system. There is no tool to measure happiness between people. This system also focuses on the ends rather than the means and methods that should be used. There is also a risk of paralysis by analysis. Using these two systems together can help an individual make a decision regarding the ethics behind insider trading. The Universal Rights Principles are a good system to use when analyzing the ethics of insider trading. Indeed, insider trading mainly concerns the employee who carries out the transactions as well as other participants in the stock market. The main principle of the homework system is to not make a decision or take an action that you would not want others free and encouraged to take. This can apply to the employee buying and selling stocks because they can think about how their actions will affect others and whether they want others to use their own experience when trading stocks. The main advantages of this system are its universality, so it can also be applied to insider trading and businesses. This system is also based on respect for others, which must be taken into account when deciding to participate in insider trading. The three categorical imperatives can also be applied to the ethical question of insider trading. According to the first imperative, an individual should act only for reasons on which he or she would be willing for someone else in the same situation to act. As long as the employee using his or her company experience to trade stocks would be comfortable with other employees doing the same, this imperative is satisfied. Everyone is treated the same, regardless of the company they work for or the specific knowledge they need to use in the stock market (within legal limits). The second imperative is satisfied because no one is treated as a means to an end. In other words, no exploitation or manipulation takes place in this type of insider trading. The third imperative states that every rational being has the right to discover for himself the truths of the moral law without external authority. This implies that the trader would have the right to determine whether his actions are ethical or not, based on the assumption that he is a rational being and can come to that conclusion. The employee engaged in trading meets this imperative by having the ability to determine moral truths. I think the golden rule is an important aspect to consider when making a decision. I like how the decision is based on everyone getting equal treatment. In this way, I consider insider trading of stocks using an employee's unique view of the company as ethical. Another ethical framework isIt is necessary to consider all points of view, even those of other stakeholders. InUsing the system of utilitarianism, insider trading can be analyzed to determine whether it is ethical or not. This system states that an individual should not take any action that does not result in more net benefit than harm to society. Applying this to insider trading, individuals buying and selling stocks must discern whether or not their use of their knowledge will affect other stakeholders in a net positive or negative way. The goal is to maximize the benefits and minimize the harms. An individual must follow the right path in any situation, after comparing all other possible options that will produce the greatest balance of benefits and costs for all involved. The trader would look at all possible stakeholders, including the company, other traders, the government, and the economy, and determine how their actions affect those people. Trading of shares by employees is carried out within the confines of the law, which is a law universally followed by other traders. They all determined that these securities laws were good and necessary for a more productive and pleasant society. Insider trading laws help regulate the market so that it remains fair for everyone involved. This helps increase the “fun,” or profits in this case, and decrease the pain of losing money. The employee who wishes to use his knowledge of the company must obviously comply with the laws put in place by the government. This minimizes harm to themselves and other investors in the market. To maximize benefits, the employee will need to determine who exactly will benefit from their business transactions. The employee himself would benefit the most, creating profits for himself and most likely increasing the value of the company. These informed investments would also create value in the market. Overall, many benefits would arise from this legal type of insider trading. I can see the value of the laws used regarding securities trading and I completely agree that they create a more level playing field. I conclude that using the utilitarian system, insider trading is considered an ethical activity. Keep in mind: this is just a sample. Get a personalized article from our expert writers now. Get a Custom Essay The ethics of insider trading can vary from person to person. between individuals and between companies. Everyone understands that using confidential company knowledge or exchanging this information for any other type of reward is considered illegal in the United States. However, when all laws are followed and employees report their transactions to the SEC, insider trading is a little more complicated to define. An employee of a company has a wealth of information that only he or she knows about certain activities that can be applied to the way stocks are traded. This insight and experience cannot be easily ignored when it comes to making an informed decision regarding how their company's personal shares are traded. Any other employee in the same situation would have the same type of knowledge. Other employees at similar companies may have the same type of vision for their respective companies. All stock market investors have the right to use their intelligence and experience to make the best decision possible and make the most money. Friedman's model of economic outcomes proves that this concept of insider trading is.