By law, any CEO or person within a company that owns shares in the company and decides to sell shares must disclose publicly that they’re selling shares of a company. This law was created to protect public investors and others from inside trading. However, in recent years many horror stories of illegal trade within companies have crept up in the news.
In 2004, Martha Stewart, a famous TV personality and media owner, was convicted for insider trading related to her sale of ImClone stock. In December 2001, ImClone’s new cancer drug was rejected by the Food and Drug Administration (FDA) and its stock price declined by almost 90 percent. Based on the tip from ImClone’s CEO, Samuel Waksal, Martha Stewart made a selling order right before the ImClone’s stock price took a dive. She was sentenced to 10 months imprisonment and fined $30,000.
Jeff Skilling, the CEO of Enron Corporation, was charged with an SEC violation of illegal insider trading for his sale of Enron’s shares before the energy giant collapsed. Skilling was also found guilty on numerous other counts of securities fraud and conspiracy and was sentenced to 24 years in prison.
In 2009, Raj Rajaratnam, a billionaire hedge-fund manager and founder of the Galleon Group, was accused of illegal insider trading that involved 19 other individuals from companies such as Bear Stearns, McKinsey, Goldman Sachs, IBM, Google and Berkshire Hathaway. The illegal scheme was estimated to earn $60 million in profits. As of 2009, Rajaratnam was the 236th richest American and his estimated net worth was $1.8 billion. In 2011, Rajaratnam was sentenced to 11 years in prison.