“The market, like the lord, helps those who help themselves. But unlike the lord, the market does not forgive those who know not what they do.” – Warren Buffet
Batni, an executive director of the company, sold 10,000 equity shares of Infosys during an open trading window. He notified the intend to sell shares, but failed to notify it within one working day of the transaction. He did it 3 days later. Infosys, known as among the most ethical firms around, knew what to do. He was made to shell out five lakhs as fine, which he donated to charity. Infy raised its public image, but what happened to that person? Wasn’t he being victimized for his ability? I’ll draw your attention to Gene.G.Marcial’s “Secrets of the Street”. In the above-mentioned book there was a story about a young analyst in an Investment Bank who came to know of US Governments decision to buy forests in a particular area. He knew forests in the area belonged to a certain firm and senses the opportunity to profit from his. He proudly tells it to his boss. The boss, who is a crook, tells him to wait to be sure, before he writes about it. When the deal became public the analyst was shocked to know that the boss made a fortune of the deal. I don’t remember the exact words as I read it in my teen years, but it was somewhat like this:”No one got hurt. But, that is not the issue! Others lacked an equal opportunity to profit.” I was amused to know that he was more concerned of the fact that all didn’t get an opportunity than that no one got hurt in the deal. Such is the moral bankruptcy of opponents of insider trading.
Let’s see what it really means. Suppose I hold 10,000 shares of Subex Systems of which the price is X Rs. You know Subex is going to merge with Azure Solutions and the price is likely to go up to X+Y. You steps in and buys shares from me for X Rs. When the deal is announced you sells it all for X+Y and gets a profit of Rs.Y per share. Have I been victimized in this deal? Certainly not, whether you have had inside information or not, I would have sold those shares. Let’s assume another person would have bought it from me and profited from it, but that person would simply have been lucky. The purpose of the law is clear: The able must be punished. Are we forgetting the fact not only the investor, but the society as the whole benefits when more knowledgeable investors are rewarded and the ill informed ones punished? These are the same people who argue private schools must be shut down to create a sense of parity and protect students of Government schools from unequal competition.Proponents of such regressive policies evade impossibility of equality.
No matter the nature of laws and no matter what Government does, inside information can’t be completely wiped out from deal. People will be forced to keep away from such deals out of the fear the Government and regulatory bodies will crack the whip. It is tantamount to saying an informed and intelligent person must not start up a business to benefit the ill informed ones. It is not only preposterous, but disastrous. Let’s not see Life as a competition, a horse race in which the weights on horses are to be equaled.