Should Pete Rose be punished more harshly if he profited from betting on the failure of a team he managed?

Think about: what limits should there be on insider trading?  In the USA, Pete Rose was a popular baseball player, and the 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?  Should Pete Rose be punished more harshly if he profited from betting on the failure of a team he managed?

  • In the Enron case, several managers sold all their Enron stock about an hour before it became public knowledge that the company was not worth as much as everyone thought. Should a manager be punished for acting prudently based on knowledge they have discovered honestly only because the general public does not have that knowledge?
  • Should managers be required to disclose private information they have that might influence the investment decisions of the public?  Also, address the question of timing about the dissemination of information: is it enough to share information on a public website or should a formal press conference be required?  

What limits should there be on insider trading? 

            According to Investopedia, there are 2 types of insider trading, legal and illegal. The illegal insider trading is basically where some insiders made a trade based on non-public information(Investopedia,2017).

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? 

            This is a difficult decision because as a manager Pete should do train the team to win in every match. And if Pete wants to bet on his team, this might show his confidence on his team and the job he has done on them. But then, that might not be correct thought process all the time. The team might play against a very weak team and Pete might want to make a profit on that opportunity. Or being a manager, he might get information about strengths and weaknesses players have or he might get information such as one key player is not playing that match, considering all the statement I would say he should not be allowed to bet, even if his motivation is just that he thinks he has done a good job and his team deserves to win, his prize will come as match win or tournament win and he would be retained as manager for next season.

Should Pete Rose be punished more harshly if he profited from betting on the failure of a team he managed? 

It should really depend on the situation, if Pete wants to bet against his team, because he thinks his team is not good enough to win against the opponent, and he makes this decision based on the information available to him, he should be punished. But there could be another scenario, which in my opinion would be worse, being a manager he can sabotage the team, say he does not allow a key player to play or changes strategy in a way that he knows would make his team lose, just because he wants to make big money on his bet against his team, I think in that case he deserved to be punished harshly. It is not only betting, it is cheating too.

In the Enron case, several managers sold all their Enron stock about an hour before it became public knowledge that the company was not worth as much as everyone thought. Should a manager be punished for acting prudently based on knowledge they have discovered honestly only because the general public does not have that knowledge?

            I would like to argue that if a manager sees the stock price going down and simply sales his stock because he wants to protect his capital or hard-earned retirement money, this selling should not be illegal. And if he has honestly discovered the information at work or someone, and if his life savings is in the stock, I think he is right to sell his position. He might be a father, a husband who has financial obligations. If he thinks it is not ethical to sell before everyone knows and waits till his stocks become worthless, the SEC or public will not reimburse his loss or fulfill his obligations.

But according to SEC “Corporate officers, directors, and employees who traded the corporation’s securities after learning of significant, confidential corporate developments;”. So the managers who sold their stocks before it became public knowledge that Enron’s stocks should not be as much as it was then. So they did the trade based on inside information and broke laws, so they would be punished.

But, I would like to think of another scenario, in which there was at least one manager who was not part of the scam that went on, and who invested in Enron’s stock because he believed in his employer, but then when everyone sales in large quantity in the market usually stock price falls. And the sudden fall might have triggered this manager to sell his stocks to save his capital. I do not think, this fictitious person should be punished because he happened to be the manager in Enron and an Enron stockholder.

Should managers be required to disclose private information they have that might influence the investment decisions of the public?  

If the private information is regarding the corporation and might impact the market capitalization of the corporation valuation positively or negatively then the minority shareholders or the potential minority shareholders should find the information out. So I would say, yes. Managers should be required to disclose private information they have that might influence the investment decisions of the public.

 Also, address the question of timing about the dissemination of information: is it enough to share information on a public website or should a formal press conference be required?  

First, let us revisit the benefits of having the information available on a public website and having a press conference, so we can decide what will benefit investors most. An important thing to remember (although it varies with time) in 2012 53% of Americans had some form of investment in the stock market (Merrit, n.d.).

A public website is accessible to all, as long as they have access to the internet and they have the knowledge about where to go to find the information. And a public website is like an archive, I can visit SEC and get historical information too. One more point, now we live in a more connected world, an investor from another part of the globe can access the website too. But, we have to note here that 11% of US adults do not use the internet according to Pew Research (Anderson, 2018).

Now thinking about a press conference, people can get the information on newspaper, TV, and websites, considering all media houses have their websites. But, an Investor might not always know which media house is covering the press conference and which is not covering it. Considering the information is available in one common public website along with press conference, that will be good, because I think the information will reach a larger audience, but only press conference might not work, because all companies might not be covered by all media houses, then information will remain scattered and it will be difficult for investors to follow.

References –

Investopedia staff (March,2017). What Investors Can Learn From Insider Trading. Retrieved from https://www.investopedia.com/articles/02/061202.asp           

Retrieved on 7/15/2018. Retrieved from https://www.investor.gov/additional-resources/general-resources/glossary/insider-trading

Anderson, M , Perrin, A , Jiang J. (March, 2018). 11% of Americans don’t use the internet. Who are they? Retrieved from http://www.pewresearch.org/fact-tank/2018/03/05/some-americans-dont-use-the-internet-who-are-they/

Merritt, C (n.d.). What is the Percentage of Americans who invest in the Stock Market? Retrieved from https://finance.zacks.com/percentage-Americans-invest-stock-market-6880.html

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