From: gts (gts_2000@yahoo.com)
Date: Thu Jun 05 2003 - 14:25:12 MDT
Brian Atkins wrote:
http://www.sec.gov/news/speech/speecharchive/1998/spch221.htm ?
This is a good summary of the arguments from the SEC's perspective.
I dispute them, however. In particular I dispute the notion that there are
real "victims" when a person trades on material non-public information.
Martha Stewart, for example, allegedly dumped her ImClone stock based on
information that Sam Waksal, the founder of ImClone, was dumping his stock.
Waksal new or strongly suspected that the FDA was about to deny the approval
of his company's cancer drug. Obviously Stewart saved a lot of money by
selling in advance of the news. Those who did not sell in advance of the
news lost money, but this would have been the case even if Martha Stewart
had not sold her stock. ImClone shareholders were destined to take a big hit
regardless of any trading by Martha Stewart. Her insider trading did not
cause the stock to drop significantly -- it was the failure of the drug to
get FDA approval that caused the stock to drop.
The real problem for investors today (and I speak as one who was in the
investment business for more than a decade) is that the financial markets
are extremely efficient. Though it is one of the best kept secrets on Wall
Street, (and the most denied truth), it is quite literally impossible to
make an excess return (that is, a return above the market return adjusted
for risk) by trading on PUBLIC information. Public information is discounted
instantly into the stock price. Numerous academic studies show this to be
true, (even while millions of hopeful stock investors read the business
section and then hope or pretend that it must not apply to them).
To make an excess return in the financial markets one must acquire and act
on information that is not already widely disseminated. But they call that a
crime in this country.
-gts
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