Years after Martha Stewart's trial was national news, insider trading was thrust back into the headlines last week as a New York Congressman was indicted for allegedly placing a call from the White House lawn to deliver a stock tip to a family member.
Rep. Chris Collins (R-NY) was initially defiant in the face of the charges but, by Saturday, had decided to suspend his reelection bid.
Collins, whose district is situated in between Buffalo and Rochester, was accused of tipping off his son that a test of Innate's experimental multiple sclerosis drug had gone badly. His son proceeded to dump his stocks in the biotech company before the poor results were made public. (Source: NY Rep. Chris Collins, Family Charged With Insider Trading", Law360).
Serious questions about insider trading prosecutions
As the headlines continue to pour in, some observers are beginning to take a closer look at insider trading and ask questions about the fairness and motives behind insider trading prosecutions.
Our laws are in place to serve as a deterrent to activities that harm the public and to hold individuals accountable for detrimental actions. Does prosecuting people for insider trading live up to this standard? The answer is "no" according to a growing number of economists.
They cite the time and effort involved as well as the costs of incarceration, all to "nail a few poor suckers to the walls for an act that is almost certainly performed far, far more often than it is ever discovered by federal agents." (Source: "Rep. Chris Collins (R-NY), Associates, Arrested on Insider Trading Charges", Reason). Some even argue that insider trading can have positive benefits for the market as a whole.
Insider trading convictions can have lifelong consequences
Whether insider trading prosecutions are a good use of public funds or are prosecuted fairly remains open to debate. However, one thing is certain: if you are charged with insider trading you need a strong legal defense. If it can happen to Martha Stewart, it can happen to you.