Insider Trading Research Paper Example | Topics and Well Written Essays - 250 words

Insider Trading - Research Paper Example In Martha Stewart case, Martha avoided a loss of $ 46000 by selling her shares which is duly covered by the fine she was subjected to; Moreover, she lost a great deal of money as a tradeoff for her legal troubles. Furthermore, Martha Stewart Living Omnimedia’s stock price fell and Martha was banned to serve as an officer or director of a public company for five years. Peter Bacanovic, on the other hand, was barred from working in securities industry along with a $ 75000 fine. These penalties are enough to set an example for the public. SEC can and should take measures to prevent such incidences before their occurrence. They can do so by eliminating the opportunity to insider trading because no matter what the penalty, such violations are very appealing to people as their upside is extremely lucrative. â€Å"Research shows that the certainty of punishment, rather than its severity, as well as how particular punishments are perceived, that most greatly impacts whether criminal sanctions deliver a potent â€Å"message† to would-be lawbreakers† (Berman, 18). Control person provision suggests certain internal controls that would raise the bonding cost. By incurring bonding costs, a firm’s cost of capital will be reduced. Insider trading leaves behind agency cost and since investors cannot detect insider trading within a firm, they adopt a discounting method to value the firm’s stock that leads to a raise in the firm’s cost of capital. So in essence, incurring bonding cost would reduce the cost of capital which would send a strong signal to the investors that the firm has taken extraordinary measures to control insider trading. So in short SEC should impose the control person provision which would encourage the application of internal