Insider trading is “alive and well,” according to Wharton accounting professor Daniel Taylor.
“A lot of people have been taught or learned that somehow all of this was stamped out in the ’80s and the ’90s. But [data] suggests that more than 50% of surveyed Americans feel the stock market is rigged and these sorts of things are going on in broad daylight on Wall Street,” he says.
Taylor was featured in a recent Bloomberg article about the pervasiveness of insider trading, which is defined as the buying or selling of public stock by someone who has material, nonpublic information about the company. Insider trading has led to the widespread perception of the stock market as a place where elitists line their pockets with impunity.
Taylor, who is director of the Wharton Forensic Analytics Lab, says it’s important for the public to understand that there is no explicit law against insider trading, making it difficult to prove and prosecute. Instead, prosecutors often use anti-fraud and other statues to charge suspects in connection with insider trading. For example, Martha Stewart spent five months in prison after being convicted in 2004 of conspiracy, obstruction of justice, and lying to federal investigators in the ImClone stock scandal. A securities fraud charge against her was dropped because of a lack of evidence.
Taylor says legislative changes are needed because case law is a “particularly weak” pathway for the prosecution of wrongdoers. He exhorted politicians to appreciate that their constituents feel the stock market is rigged and white-collar crimes go unpunished.
“One would hope that once the scope of the issue is recognized and once the connection to the politics has been made, you would see politicians on both sides of the aisle calling for the laws to go on the books, calling for there to be reforms and more robust enforcement,” Taylor says.
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