4 ms·

I once read an argument (maybe here on HN, I'm not sure) that if insider trading were legal, Enron wouldn't have taken anybody by surprise. I'm not sure I buy

I once read an argument (maybe here on HN, I'm not sure) that if insider trading were legal, Enron wouldn't have taken anybody by surprise. I'm not sure I buy the argument that it should consequently be legal, but it's an interesting idea.

DontGiveTwoFlux 8y ago
On the other hand, consider how rare the Enron case seems to be. Since it's implosion, how many other companies were based on total fraud? Theranos is all that comes to mind and it wasn't even public. It seems like the system mostly prevents massive Enron style fraud.
- megaremote 8y ago
  You mean, how many companies have been outed as being based on total fraud.
- wp381640 8y ago
  heaps of public companies turn out to be frauds, there is an entire industry out there of people spotting fraudulent stocks and shorting them (see Muddy Waters, Citron research et al) Sino-Forest has probably been the largest and most well known (as well as Valeant and their fake pharmacies) along with a bunch of Chinese small-medium-cap reverse IPO's like CCME
- darkpuma 8y ago
  Total fraud isn't the only sort of corporate fraud though. Legalized insider trading would really open the floodgates for financially incentivized 'whistle-blowing' of any sort of fraud (as well as basically anything else that could conceivably move the market...)
- hammock 8y ago
  Tyco, WorldCom, Healthsouth, Adelphia, Lehman Brothers, Freddie Mac, AIG, Bernie Madoff... Shall I go on?
  - diogenescynic 8y ago
    Trump.
anitil 8y ago
That's an interesting idea! Finding the 'victim' in insider trading is complicated as well because it is typically someone who would have made a trade but didn't, so how do you know who they are? There was a Planet Money podcast about this [0] that if I remember correctly said it wasn't even explicitly illegal in the US until relatively recently. It was considered theft to take insider knowledge, but not illegal to trade on it. [0] I think it's this one: https://www.npr.org/sections/money/2015/12/23/460689797/episode-671-an-insider-trader-tells-all https://www.npr.org/sections/money/2015/12/23/460689797/epis...

DontGiveTwoFlux 8y ago

On the other hand, consider how rare the Enron case seems to be. Since it's implosion, how many other companies were based on total fraud? Theranos is all that comes to mind and it wasn't even public. It seems like the system mostly prevents massive Enron style fraud.

megaremote 8y ago
You mean, how many companies have been outed as being based on total fraud.
wp381640 8y ago
heaps of public companies turn out to be frauds, there is an entire industry out there of people spotting fraudulent stocks and shorting them (see Muddy Waters, Citron research et al) Sino-Forest has probably been the largest and most well known (as well as Valeant and their fake pharmacies) along with a bunch of Chinese small-medium-cap reverse IPO's like CCME
darkpuma 8y ago
Total fraud isn't the only sort of corporate fraud though. Legalized insider trading would really open the floodgates for financially incentivized 'whistle-blowing' of any sort of fraud (as well as basically anything else that could conceivably move the market...)
hammock 8y ago
Tyco, WorldCom, Healthsouth, Adelphia, Lehman Brothers, Freddie Mac, AIG, Bernie Madoff... Shall I go on?
- diogenescynic 8y ago
  Trump.

anitil 8y ago

That's an interesting idea! Finding the 'victim' in insider trading is complicated as well because it is typically someone who would have made a trade but didn't, so how do you know who they are? There was a Planet Money podcast about this [0] that if I remember correctly said it wasn't even explicitly illegal in the US until relatively recently. It was considered theft to take insider knowledge, but not illegal to trade on it. [0] I think it's this one: https://www.npr.org/sections/money/2015/12/23/460689797/episode-671-an-insider-trader-tells-all https://www.npr.org/sections/money/2015/12/23/460689797/epis...