In the USA, Pete Rose was a popular baseball player, and then manager, who was punished for betting on his own team to win. Should Pete Rose be allowed to profit from betting on the success of a team he managed?

There is overwhelming evidence that a negative connotation is often associated with insider trading, but it includes both legal and illegal conduct. In fact, insider trading refers to any stock transaction (buying or selling a security) based on inside information about the company’s future (sec.gov, 2013). Legal insider trading occurs when insiders buy and/or sell shares in their own companies and properly report their transactions to the relevant authorities while illegal insider trading occurs when a security is bought or sold, in violation of fiduciary duty or other relationship of trust on the basis of material non-public information on security (Newkirk and Robertson, 1998).

Given that insider trading undermines investor confidence in the fairness and integrity of securities markets, the U.S. Securities and Exchange Commission (SEC) considers the detection and prosecution of insider trading as one of its priorities. Nevertheless, while insider trading is ubiquitous in the field of financial markets (the stock market), it also strikes the world of sport and in particular games gambling. The situation of Pete Rose, banned for life from the major leagues of baseball games for his alleged infringement of gambling games, especially on his own team, is a typical example of the implications of insider trading outside the financial world. Although the bet on failure may seem to be much worse than the bet on the success of the team, none of them should be tolerated for those directly involved in the game as this could affect the uncertainty inherent in the game. It's always problematic from the point of view of integrity. It is clearly stipulated in the Major League Baseball Rule that “Any player, umpire, or club or league official or employee, who shall bet any sum whatsoever upon any baseball game in connection with which the bettor has a duty to perform shall be declared permanently ineligible”( Rodenberg, 2014).

In addition, it can be assumed that Rose did not bet on each game which could be a signal that he was not very confident in games on which he did not bet. Not only could other people have used this internal information to place a bet against Rose's team, but also the way he made the decision as a manager could have been influenced (Rodenberg, 2014). For example, in games where he had not bet, he could rest some players to be high-spirited at the next game, when he is betting on the team. On the other hand, betting on the failure of a team you have managed is even worse. It simply means that you put your interest first and at the expense of the team's interest. While the punishment / sentence should be imposed within the limits of the law, it would not be invidious to inflict a more severe punishment on the team leader if he took advantage of betting on the failure of a team.  

In Enron case, several managers sold all of their Enron stock about an hour before the public knew the company was not worth as much as everyone thought. Obviously, those managers with confidential information about important upcoming events use the particular advantage of this knowledge to reap profits or avoid losses in the stock market, to the detriment of the source of information and typical investors who buy or sell their stocks without the benefit of confidential information (Newkirk and Robertson, 1998). Such conduct is illegal and violates the insider trading law and regulations. Therefore, while acting prudently on the basis of the knowledge they have honestly discovered, these managers should be sanctioned because the sale of their shares violated a fiduciary or other trust relationship, based on information material non-public information about the security.

There are various forms of insider trading that include the classic insider trading scenario, that is, when an insider with fiduciary duties to shareholders is in possession of material non-public information, the tipper/tipee scenario, and the misappropriation theory (Newkirk and Robertson, 1998). In fact, the law is much more nuanced than it is generally understood in terms of material information non-public that others do not have. More often than not, in our trading, a party holds information that the counterparty may ignore. Asymmetric information gives the buyer or seller a better opportunity to make a profit on the purchase or sale of a financial guarantee that causes one party to take advantage of the other party. With the adoption of the Sarbanes-Oxley Act, following the Enron affair that cost investors billions of dollars and lost far more than their jobs and life savings, public companies are required to disclose more complete information about everything which directly or indirectly influences or could influence the financial results (Dittmar, 2014). In my opinion, fairness and integrity should ideally be the underlying elements of our transactions because it is difficult to make informed decisions without having relevant information. Although public companies are required to disclose significant financial and other information to the public, managers should be required to disclose private information that could influence that decision, thereby eliminating information asymmetry and putting all parties on an equal footing for more sound decisions.

Finally, with respect to the timing of disclosure, the Securities and Exchange Commission has adopted regulations requiring corporate transactions to be declared on the stock exchanges before being traded. The regulation prohibits companies from engaging in a once-common practice in which they reveal new information to selective audiences, hours, days or even weeks before announcing it to the general public (Dittmar, 2014). As long as people interested in the stock market know where to find the information, it should be enough to share the information on a public website. No formal press conference should be required unless everyone in general who may be interested does not have access to the publication of new information on the website which may increase the risk that certain groups of traders may have superior information.

References

U.S. Security and Exchange Commission website (2013). Insider Trading. Retrieved April 28, 2018, from https://www.sec.gov/fast-answers/answersinsiderhtm.html

Newkirk, T., Robertson, M. (1998). Speech to SEC Staff: Insider Trading—A U.S. Perspective. Retrieved from: http://www.sec.gov/news/speech/speecharchive/1998/spch221.htm

Rodenberg, R. (2014). The Inarguable Logic of Why Pete Rose Should Remain Banned from Baseball. Retrieved July 14, 2018, from https://www.theatlantic.com/entertainment/archive/2014/08/why-pete-rose-still-cant-be-absolved/378866/

Dittmar, S. W. (2014). The Unexpected Benefits of Sarbanes-Oxley. Retrieved July 15, 2018, from https://hbr.org/2006/04/the-unexpected-benefits-of-sarbanes-oxley