So I was recently listening to some additional presentations from an audio series about investment. This particular installment was called “Stock Frauds, Manipulations, and Insider Trading.” I found out that it was actually two presentations: one about “Famous Frauds and Stock Manipulations,” and one about “The Story of Insider Trading.” Both were as interesting as I expected them to be, and brought back fond memories of my days as a business major.
Famous Frauds and Stock Manipulations
The presentation about “Famous Frauds and Stock Manipulations” gives some of the history of financial frauds. The presentation notes that financial fraud is probably as old as society itself. However, the presentation focuses on financial frauds committed in the United States. They start at the American Revolution, with the insider trading of William Duer. Alexander Hamilton had to come down hard on his friend when Duer was caught. Thus, Duer spent the rest of his life in debtor’s prison. They also talk about Ulysses S. Grant being cheated by his business partner, Ferdinand Ward. This forced the former general and president to write his popular memoirs. This presentation also discusses the railroad magnate Daniel Drew. Mr. Drew definitely engaged in insider trading, in his battle with rival Cornelius Vanderbilt. This presentation also talks about Charles Ponzi, the namesake of the Ponzi scheme. In 1929, the stock market crashed. Thus, there was a great call for reforming the financial markets during the Great Depression. Most forms of insider trading were therefore banned. Before someone could act on any information, they had to make sure that it was publicly available. And they also had to file a record of any inside trades with the Securities and Exchange Commission. This is the topic of another audiobook in this series. Suffice it to say here that this subject has a lot of human drama. There’s even an air of Greek tragedy to some of it.
Charles Ponzi, the namesake of the Ponzi Scheme
The Story of Insider Trading
The presentation about “The Story of Insider Trading” takes a very different approach. When insider trading was banned by Congress, the laws contained some vague wording. Thus, there were a number of court cases about what constitutes “inside information,” and the illegal use thereof. Therefore, this presentation is partly a history of these regulatory changes. This presentation discusses the scandals that led to legislative changes, and the dramatic court cases surrounding the definition of “insider trading.” The Securities and Exchange Commission lobbied for a vague definition. They felt that a more specific definition would create loopholes through which investors could jump. Later in the presentation, the author presents arguments about whether insider trading should be legalized. Some economists argue that insider trading helps prices to more accurately reflect the latest information. Others, of course, are against it, and are also quoted here. In the end, this audiobook avoids taking sides in the matter. But they do spend time on those investors who monitor the public SEC disclosures of inside trades. If all of the legal inside traders in a company are buying, then these investors would definitely like to buy, too. If all of the legal inside traders in a company are selling, then these investors may or may not do the same. Sometimes insiders sell their stock options to finance a kid’s college education, or to finance a new car. At other times, they do so because they feel that their company is in serious trouble. But you can still learn a lot from what the insiders are doing, by monitoring information that has since become public. These details surrounding insider trading would definitely be useful information for an investor to know. But it’s also one of the most colorful areas in all of finance.
Daniel Drew, a railroad magnate who engaged in insider trading
Both of these presentations were quite good, and would give useful information for someone wanting to invest their own money. But I don’t have any plans to engage in investing myself, and mainly just wanted to round off my knowledge of business (and particularly finance). Thus, I found these presentations useful – not to mention interesting.
If you liked this post, you might also like:
Part of an audiobook series
Secrets of the Great Investors
Stock Frauds, Manipulations, and Insider Trading
Others to be covered later
See also the audiobook series
Great Economic Thinkers
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