Insider trading scandals

Insider Trading Scandals: A Timeline


The international financial community felt shockwaves when it became public knowledge that high-level officials had manipulated the stock market for personal gain Greed, dishonesty, and treachery have always been at the core of these scandals, beginning with the insider trading scandal that occurred on Wall Street in the 1980s and continuing on into more recent high-profile incidents. Greed, dishonesty, and treachery have always been at the core of these scandals. In the following paragraphs, we will investigate a timeline of the insider trading scandals that have garnered the most media attention over the course of the past several decades.

History of insider trading scandals

Insider trading is the illegal buying and selling of securities based on non-public information. In the eyes of the law, it is nothing more than market manipulation, and hence unlawful. Since the early 1900s, insider trading scandals have been a persistent issue in the stock market. In the 1920s, after the deregulation of the stock market, the United States experienced its first major insider trading scandal.

In the 1930s, the Securities and Exchange Commission (SEC) was formed to regulate the stock market and prevent insider trading. Since then, there have been numerous insider trading scandals, and some of these have resulted in criminal charges and convictions. The most notable of these include the 1960s Wall Street insider trading scandal involving Ivan Boesky and the 1980s junk bond insider trading scandal involving Michael Milken. In the 1990s, the U.S. government cracked down on insider trading, prosecuting hundreds of individuals and companies. Companies and people are still dealing with the fallout from insider trading incidents.

The history of insider trading scandals dates back to the earliest days of the stock market. As early as 1792, the U.S. Congress passed a law that prohibited the use of insider information to gain an unfair advantage in the stock market.

Securities and Exchange Commission (SEC)

In the late 19th century, the first real insider trading scandal occurred when the Wall Street firm of Moore & Schley was accused of using insider information to purchase stock in a copper mine. The early twentieth century created the first federal anti-fraud rules, making it illegal to trade on insider information

More recently, the U.S. Securities and Exchange Commission (SEC) has cracked down on insider trading. The SEC looked into the 1980s Wall Street bankers Ivan Boesky and Dennis Levine for alleged insider trading. In the 1990s, the SEC filed fraud and insider trading charges against Michael Milken, a Wall Street tycoon.

The SEC recently charged several individuals, including former Goldman Sachs executive Mathew Martoma, with insider trading in a 2020 insider trading scandal. The SEC alleged that Martoma had used confidential information from a clinical trial to illegally trade in pharmaceutical stocks.

For many years, insider trading scandals have been a major issue in the stock market. In response, the SEC has taken a firm stance, imposing harsh penalties on those found guilty of using insider information to gain an unfair advantage. These punishments include jail time, hefty fines, and other disciplinary actions. As a result, the SEC has been successful in deterring many would-be insider traders and ensuring that the stock market remains a fair and equitable place for all investors.

A timeline of insider trading scandals

1950: The SEC begins to crack down on insider trading after the revelation of widespread insider trading abuses on Wall Street.

1959: The SEC enacts the Williams Act to regulate insider trading.

1960: The SEC begins to target “tipping” of inside information and insider trading cases become more common.

1972: SEC v. Texas Gulf Sulphur Co. sets a precedent for insider trading cases and establishes that trading on inside information is illegal

1986 Ivan Boesky: Wall Street trader Ivan Boesky was convicted of insider trading after he illegally traded stocks for more than $50 million in profits.

1986 Dennis Levine: Investment banker Dennis Levine was convicted of insider trading after he illegally traded stocks based on confidential information

2002 Martha Stewart: Martha Stewart was convicted of insider trading after she sold more than 4,000 shares of ImClone Systems stock before a negative announcement about the company.

2005 Bernard Ebbers: Former WorldCom CEO Bernard Ebbers was convicted of insider trading after he sold $11.2 million in WorldCom stock before the company announced a massive accounting scandal.

2011 Raj Rajaratnam: Galleon Group founder Raj Rajaratnam was convicted of insider trading after illegally trading stocks for over $50 million in profits.

2012 Rajat Gupta: Former Goldman Sachs director Rajat Gupta was convicted of insider trading after he shared confidential information about his company with an investor.

2013 Steven A. Cohen: Steven A. Cohen, the founder of SAC Capital Advisors, was accused of insider trading and was fined $1.2 billion.

2018 Raj Rajaratnam: Raj Rajaratnam was convicted of insider trading again after prosecutors accused him of illegally trading stocks in a “massive and unprecedented insider trading scheme.”

Ivan Boesky

Ivan Boesky bears the distinction of becoming the most prominent person in the history of the United States to be found guilty of insider trading. This accomplishment came about as a result of his involvement in the Enron scandal. His business consisted of making trades on the stock market based on information. It was not open to the general public and got from his contacts at various Wall Street firms. These contacts allowed him access to information that was not publicly available.

In a case that began in 1986, he was found guilty of engaging in insider trading. He received a sentence of three years in prison for his crime. The investigation into his actions revealed that he had traded on inside information. He consented to the terms of the deal, which stated that he would pay a total of one hundred million dollars in fines and restitution. The case involving Boesky was a significant contributor to the development of more stringent regulations around insider trading in the United States. In addition to this, it established a precedent for future convictions of individuals who participate in the behavior of this nature.

Dennis Kozlowski

Dennis Kozlowski is perhaps one of the most infamous names when it comes to insider trading scandals. He was arrested in 2002 on 38 charges of securities fraud, grand theft, and conspiracy. At the time of his arrest, he was serving as CEO of Tyco International. Among the accusations leveled against him was the use of business funds, along with those of other executives, to make unauthorized purchases of artwork and jewelry totaling millions of dollars. They also used company funds to pay for lavish parties, vacations, and other personal expenses. Kozlowski was found guilty in 2005 and given a sentence that may put him behind bars for up to 25 years.

Kozlowski’s insider trading scandal is a prime example of the greed and manipulation that can accompany such activities. He profited off of illegal stock trades, as well as fraudulent investments.

Sam Waksal

Waksal’s company, ImClone Systems, which he founded in 1987, went public in 2000. In fact, Sam Waksal led the company as CEO until 2002. That year, the company first submitted an application to the FDA for approval of Erbitux. Waksal and his family started selling their ImClone stock as the date of the FDA’s decision approached.

In the wake of the FDA’s decision to reject ImClone’s application for Erbitux, the stock price of the company plummeted. After it came to light that Waksal had participated in insider trading, he was arrested and charged with numerous felonies. This led to his guilty plea and a seven-year prison term.

Soon after his release, he established Kadmon Pharmaceuticals with the goal of developing medicines to combat cancer and other diseases. The SEC fined him $5.5 million that year after allegations of stock manipulation at the company (2018).

Waksal has used his time behind bars to push for better treatment of inmates and reforms to the criminal justice system since his release. Moreover, he has documented his time behind bars in a book titled My First Prison.

Martha Stewart

In 2004, Martha Stewart, MSO’s founder, was convicted of insider trading for her role in the selling of ImClone Systems Inc. shares. A day before news broke that the FDA had rejected ImClone medicine, Stewart dumped nearly 4,000 shares of the company’s stock. She avoided losses of around $45,000 by selling the shares ahead of time. 

Stewart was investigated for insider trading and obstruction of justice after he was accused of deceiving authorities about the reason behind the stock sale and why he was selling it. Martha Stewart, the company’s namesake, and founder were found guilty of insider trading in 2004 for her involvement in the sale of shares of ImClone Systems Inc. The case gained a lot of attention in the media due to Stewart’s celebrity status. It highlighted yet another example of how insider trading scandals can be so damaging, even when those involved are highly successful public figures.

Insider trading scandals

A concise history of Martha Stewart’s insider trading

November-December 2001: Martha Stewart is accused of insider trading.

June 2002: Stewart is charged with conspiracy, obstruction of justice, and securities fraud for her alleged involvement in the ImClone Systems insider trading scandal.

March 2003: Stewart is indicted on nine counts related to the ImClone insider trading scandal.

April 2003: Stewart resigns from the board of directors of her company, Martha Stewart Living Omnimedia.

July 2004: Stewart is found guilty of four counts of obstruction of justice, conspiracy, and making false statements to federal investigators.

September 2004: Stewart is sentenced to five months in federal prison and two years of supervised release.

October 2004: Stewart begins her jail sentence at Alderson Federal Prison Camp in West Virginia.

March 2005: Stewart is released from prison after serving five months of her sentence.

July 2006: Stewart is sentenced to an additional five months of home confinement and two years of supervised release.

August 2007: Stewart is released from home confinement.

March 2009: The SEC settles a civil case against Stewart, requiring her to pay a $195,000 fine and accept a five-year ban from serving as an officer or director of a publicly traded company.

June 2014: Stewart settles an investor lawsuit related to her insider trading scandal, agreeing to pay $2.45 million.

Raj Rajaratnam

Raj Rajaratnam is the founder of the Galleon Group hedge fund. It involved the highest-profile personage implicated to date in an insider trading scandal. Two years of federal investigation culminated in October 2009 when he was charged with conspiracy and securities fraud. Using confidential information, he allegedly made over $50 million in illegal profits.

Rajaratnam and his associates are alleged to have made money off illegal tips about upcoming mergers and acquisitions by tech giants such as Google, Intel, and Microsoft. These tips included confidential information from employees at Goldman Sachs and consultants at McKinsey & Company. The U.S. government alleged that Rajaratnam and his co-conspirators had been engaging in insider trading for years, making millions of dollars in illegal profits.

In 2002, he was arrested on 38 charges of securities fraud, grand theft, and conspiracy as CEO of Tyco International. The judge slapped him with 11 years behind bars and a $10 million fine. Moreover, he lost over $53 million in unearned income. This was the longest sentence for insider trading in the United States, as far as I am aware. Insider trading scandals are serious and common, and the Rajaratnam case has brought this to light.

Insider trading scandals


The issue of insider trading scandals is one that has plagued the financial world for decades. From Ivan Boesky to Raj Rajaratnam, these cases serve as a reminder of the dangers of greed and manipulation in finance. Insider trading scandals have serious consequences not only for those involved but for the stock market and investors at large. While the cases mentioned here are certainly not exhaustive. They serve as a cautionary tale of the importance of abiding by the law when dealing with investments. Ultimately, insider trading scandals demonstrate the need to create and adhere to a code of ethics within the business world.

Frequently Asked Questions

1. What are some of the most notable insider trading scandals?

Some of the most well-known insider trading scandals include the Martha Stewart case in 2001. The Raj Rajaratnam case in 2009, and the Ivan Boesky case in 1986.

2. What happened in the Martha Stewart case?

In 2001, Martha Stewart was accused of selling her shares of ImClone Systems after learning through her broker that the company’s CEO was selling his holdings. Following the verdict, Stewart lied to federal prosecutors.

3. What happened in the Raj Rajaratnam case?

The Galleon Group’s founder, Raj Rajaratnam, faced insider trading charges in 2009. In total, Rajaratnam was found guilty on 14 charges of securities fraud and conspiracy. He got 11 years in prison and a $92 million fine.

4. When did the first Insider Trading Scandal occur?

Several American investors in the 1980s were probed for insider trading. Investors bought and sold stocks based on knowledge that wasn’t available to the public. The Wall Street insider trading scandal accurately describes this event. It resulted in several convictions, including that of Ivan Boesky, a Wall Street arbitrager.

5. What happened in the Ivan Boesky case?

In 1986, the Wall Street trader and arbitrageur Ivan Boesky were accused of illegal insider trading. The court found Boesky guilty and handed down a $100,000,000 fine.

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