Should We Legalize Insider Trading?

Finance guru James Altucher ponders the benefits to condoning the shady practice

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With the high-profile arrest of hedge-fund manager Raj Rajaratnam, insider trading is back into the spotlight. Everyone knows the problem with insider trading: "[T]he average investor will get taken advantage of. If some players in a market have an advantage, then some have a disadvantage and that's not fair." But James Altucher, who provides that clear explanation, isn't "sure it's so black and white." Why? Here are a few reasons he thinks society might benefit from legalizing insider trading:

  • "The more information in a market, any market, the more efficient prices become."
  • "Fraud will be exposed earlier ...  Enron is an example where tens of thousands of investors got burned because they were piling into the stocks during the later stages of its fraud. If insiders were selling we would've seen a much swifter move down, and probable fraud exposed."
  • "Companies will either become more transparent, to keep the retail investor happy, or will themselves enforce secrecy rather than being complacent with the idea that the law somehow protects their secrets."
  • "More enforcement dollars will be used to uncover actual frauds such as the next Enron or Worldcom. Arguably, these frauds are a thousand times more dangerous for the retail investor than what is probably a victimless crime such as insider trading."
  • "Insider trading is almost impossible to prosecute and the government wastes countless dollars trying."

So what do you think: Should we make insider trading legal?

This article is from the archive of our partner The Wire.