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.
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Finance: What are Insider Trading And th...11 Views
Finance a la shmoop what is insider trading and the securities fraud
Enforcement Act of 1988? all right well the Securities and Exchange Act of 1934
aka the 34 Act made it formally illegal to use inside information in trading
stocks amazingly that used to not be illegal or at least not explicitly so [People gambling]
and it wasn't enforced investing was well a clubby white man's insiders gig
and the boys took care of the boys well since people could make a lot of
money with insider information and thought they wouldn't get caught like [Boy peeing at a urinal]
well who's gonna know that I overheard the CEO of big company talking about a
merger in a Denny's washroom you know some folks pretty much ignored
the law well the 1988 law was basically Congress saying you guys were really [Congressman discussing the 1988 law]
serious about this so this new legislation added some hefty penalties
if you get caught as an inside trader people still trade on insider
information though and they still get caught and they go to jail and they lose [Jail door closes on man]
everything they have so he's got to realize some of us were just born to be
bad...
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