Insider trading was made illegal during the reforms that followed the stock market crash of 1929 and the onset of the Great Depression.
The practice of insider trading involves using information that isn't available to the general public in order to profit in the stock market. So...you know that a company is about to announce that it's agreed to be purchased by its biggest rival. You buy the stock ahead of the general announcement. When the news hits, the stock skyrockets and you make a fortune.
Even though insider trading became illegal during the 1930s, the penalties weren't very stiff. For a long time, a person could use insider information to make money in the stock market, get caught, pay the fine, and still end up earning a profit on the whole transaction (even taking the amount of the fine into account).
The Insider Trading Sanctions Act Of 1984 was meant to change that. It was the 1980s, after all, the time of Gordon Gekko and Patrick Bateman. People were running around in boxy suit coats and slicked-back hair, yelling buy and sell orders into brick-sized cellular phones...just insider trading like crazy.
The 1984 update to the insider trading laws was meant to change that. It made it easier to prosecute insider trading, and increased the financial penalties related to conviction.
Just ask Charlie Sheen at the end of Wall Street.
Related or Semi-related Video
Finance: What is Regulation Full Disclos...43 Views
finance a la shmoop. what is regulation full disclosure or in industry parlance
reg FD ?all those whispery hallways of the 1970s and 80s
insiders muckety-mucks cheaters Liars deceivers key employees on the take [men in suits discuss stocks]
sound like the dramatic cover for a Hollywood movie and while it was and it
was real life as well. the practice of gleaning information
essentially unavailable to the average investor was a large part of the
practice of quote doing research unquote for all too many of the professional by
side investment firms of the era. the regulator's finally noticed and began to
crack down with only modest success for a while when finally reg FD was enacted
via the SEC in 2000. well that regulation massively prohibited the type of
discussions that could legally happen among analysts and company insiders. in
fact disclosure of much more than much more than the company name mailing
address and the product they sold was prohibited unless it was done in a
broadly available and well-publicized public forum that John Q public could [woman gives presentation]
participate in. the goal here was to take away free money or profits or gains from
insiders leaking information you know so that investors could make bets with way
more information on whether or not the roulette wheel of the company's
quarterly performance in earnings was going to in fact land on red twenty
three. so yeah that's what reg FD is about. trust us we've fully disclosed
everything we know about it and we're going modern here. modern era people come
on get with it. [man folds arms inside casino]
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