Management of Corporate Risk and Crime 1

MANAGING CORPORATE RISK AND CRIME

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 Management of Corporate Risk and Crime 2

Part A:
Question Two
According to the Merriam Webster Dictionary, insider dealing is well defined as an
unlawful practice of trading on the stock exchange to one's benefit done by obtaining access to
confidential information. Ganti (2020) defines insider dealing as buying and selling a publicly-
traded company's stock by an individual with private, substantial information about a particular
stock. In addition, Ganti states that confidential information is obtained secretly and illegally
without the involved parties' consent. As a result, several business segments are yet to detect
such activities since only the private information holders recognize detailed evidence about such
transactions and the inquiry of whether such activities are damaging to the involved party in a
legal sense. The particular individuals with access to an organization's private information
typically gain unfair benefits over other investors and shareholders. This paper section will
judgmentally analyze the United Kingdom's approach in imposing criminal sanctions in
preventing insider dealing.
From my perspective, I consider insider dealing as an illegal entity; thus, the use of legal
sanctions in this area is essential. Despite the activity having some positive support by several
academics and professionals, insider dealing has some considerable adverse effects; for instance,
according to Sebastian (2019), the non-public information obtained could destabilize the
confidence in the monetary system making retail stockholders circumvent the rigged markets.
Additionally, insider dealing robs investors since they don't have the full value of their securities.
In regard, I believe insider dealing should be prohibited.
In the United Kingdom, several legislative controls have been formulated to deal with
insider dealing. According to the Cornell Law University Library, legislative control concepts
involve the governing body in administration to the degree that it examines and has the
supremacy to influence the executive's administrative activities. According to Part V of the
Companies Act 1980, "an individual with non-public information regarding a particular stock
should not participate in a stock exchange of that company" In general, the Act prohibits an
individual with confidential information from trading since these inside dealers violate good faith
and trust by betraying and engaging in such crime issues. In addition, the Act prohibits all
connected persons relating to the investigated company and individual, e.g., directors, officers,
and senior employees. Other stakeholders with shares might be unaware of or closely connected
to the organization's ongoing insider dealing activities.
The related persons are forbidden not only from insider dealing but also from linking
information to anyone since selling or communicating about "the unpublished price sensitive
information may result in an unfair trade in the relevant securities. Individuals associated with
only one organization are also prohibited from stock trading based on other company's securities'
private information to ensure they didn't acquire the information from the first organization's
influences. The Act also provides that an individual with unpublished price sensitive information
is not prohibited from doing any particular thing rather than having the view of making a profit
or avoiding a loss either for himself or another person by using that information (Lee, 1982)."
In contrast, The Financial Act 1986, enacted by Margaret Thatcher's Government,
utilized legislative and self-regulation to legalize industrial and financial services. Moreover, the
Act created securities and other investment panels to control the various instigated self-
 Management of Corporate Risk and Crime 3

regulating organizations. According to Worther Spoon (1994), The Financial Act 1986 was later
succeeded by the Financial Services and Markets Act 2000. Other legislative controls in the
United Kingdom include the Part V of the Criminal Justice Act 1993, whose principal purpose
was to scrutinize the influences of the Criminal Justice Act 1993 on the future prosecutions of
insider dealing in the country. The Act also represents the benefits of the government's actions to
translate the EC Directives' necessities on insider dealing into domestic law. Generally, Part V of
the Criminal Justice Act 1993 elaborates on how the inside dealing offence can be conducted, for
instance, by wrongly disclosing private information. The Market Abuse Directive is exercised to
ensure transparency in the business environment (Legislation,2011).
Prohibition of insider dealing is influenced by several factors, which include. Firstly,
according to Leland (1992), insider dealing damages the effective allocation of the financial
markets by interfering with the financial markets' appropriate setting. As a result, insider dealing
creates tension among the particular company leading to a lack of trust and confidence from the
shareholders and the public. Secondly, insider dealing results in reduced market liquidity,
making the stock and real estate markets experience unbalanced buying and selling prices.
Thirdly, it leads to an increment in the cost of capital. Typically, the capital cost can be increased
by productive infrastructure, political stability, conducive, and healthy business environments. In
addition, insider dealing increases more risk to the development of fair and orderly markets, thus
damaging the regular trading approach. This risking may lead likely to a massive loss of stocks
and properties to unaware investors. Insider dealing should be prohibited since it involves
immoral misconducts on a drive to access confidential information for self-gain. Insider dealing
is typically an activity differing from the correct business ethics since the involved individuals
never follow the proper professional protocols to obtain information. Lastly, insider dealing may
damage a company and its members, i.e., investors, leaders, and employees, since sharing
negative confidential information may lead to a company losing its investors, thus declining
reputation, job opportunities, and public confidence. According to F ‌ xigor Trader (2020), insider
dealing has only one benefit; profits, since it mostly happens when securities prices move. These
profits are gained by both the insider and the company.
Part B
Base on the scenario, it is evident David has committed theft since, according to the Theft
Act of 1968, an individual is found guilty of theft if he/she fraudulently takes possessions
belonging to another to rob him or her. In this regard, David dishonestly took the investor's
wallet and used its contents as his own, i.e., obtaining a full training session using the gym
membership card. Also, theft consists of two elements; Actus Reus and
Mens Rea, which proves David's case According to Section One of the Theft Act, Actus
Reus is defined as "Appropriation of property belonging to another." In this scenario, David took
a wallet belonging to an investor. Moreover, Mens Rea is described as dishonesty' and 'intention
of permanently depriving the other of it' In our scenario, David knew the wallet's owner.
However, he still took and used essential items. It was also evident David had no intention of
returning the wallet since he threw the wallet in the dustbin. If the owner discovers the action, he
will not consent to David's activities since they were conducted for self-gain.
 Management of Corporate Risk and Crime 4

The theft act 1968, section 3 elaborates "appropriation as any assumption by a person of
the rights of an owner." Section 4 "property includes the money and all other property, real or
personal, including things in action and other intangible property." Section 5, about belongings,
states that "property shall be regarded as belonging to any person having possession or control of
it, or having in it any proprietary right or interest" (Royall, 1968). Compared with David's
conduct, he proves that he had done theft. After all, he intended to steal because he carried
everything, including the wallet, and thrown it away. Mens Rea about dishonesty, David can be
regarded as a dishonest person because he has no right to deprive the wallet. He never knew that
the owner's wallet would consent to the appropriation if he knew the circumstance. Finally,
David knew how to discover the owner of the wallet by taking reasonable steps. He could have a
look for other measures and see how the owner will get it. Failure to that, he should have
submitted it to the management rather than taking the crucial details and throwing it away.
Moreover, obtaining services dishonestly can be considered fraud since he/she has not
paid for it. Considering the two terms, get shows that the offences require that the services are
already acquired. On the other hand, services include those not paid for or received using false
information. Finally, David might not be guilty of theft but guilty of fraud since he ultimately
returned the membership card after enjoying its privileges.
To avoid such situation in the future, Peter should consider using various risk management
theories for instance, agency and stakeholders’ theories. According to Rampling, (2012), these
theories provide a means of understanding business challenges. Agency theory explains the
relationship and self-interest in the business organization. In regard Peter should ensure a strong
relationship among the associates, by ensuring theft and fraud issues are regularly
communicated. The stakeholder’s theory, explains that a business should create value for both
stakeholders and business members. Additionally, the theory suggests that success of a business
is normally based on satisfying all the stakeholders, rather than those who only benefit from its
routine (Rampling, 2012).
 Management of Corporate Risk and Crime 5

References
Fxigor Trader. (2020). Advantages and Disadvantages of Insider Trading. [online] Forex Education.
Available at: https://www.forex.in.rs/advantages-and-disadvantages-of-insider-trading/.
Ganti, akhilesh (2020). Insider Trading. [online] Investopedia. Available at:
https://www.investopedia.com/terms/i/insidertrading.asp.
Lee, T. (1982). Law and Practice with Respect to Insider Trading and Trading on Market Information in
the United Kingdom. University of Pennsylvania Journal of International Law, [online] 4(4),
p.389. Available at: https://scholarship.law.upenn.edu/jil/vol4/iss4/6/ [Accessed 16 Jan. 2021].
Legislation.gov.uk. (2011). Company Securities (Insider Dealing) Act 1985. [online] Available at:
https://www.legislation.gov.uk/ukpga/1985/8/enacted.
‌Legislation.gov.uk. (2011). Theft Act 1968. [online] Available at:
https://www.legislation.gov.uk/ukpga/1968/60/section/1.
‌Leland, H.E. (1992). Insider Trading: Should It Be Prohibited? Journal of Political Economy, [online]
100(4), pp.859–887. Available at: http://www.jstor.org/stable/2138691 [Accessed 17 Jan. 2021].
Rampling, P.N. (2012). From Agency to Stakeholder Theory: Realigning Executives Focus. SSRN
Electronic Journal.
Royall, D.V.E. (1968). The theft act 1968. The Law Teacher, 2(3), pp.100–104.
Sebastian. A., (2019). Why Insider Trading Is Bad for Financial Markets. [online] Available at:
https://www.investopedia.com/articles/markets-economy/092216/why-insider-trading-bad-
financial-markets.asp.
Wortherspoon, K. (1994). Inside Dealing - The New Law: Part V of the Criminal Justice Act 1993. The
Modern Law Review, 57(3), pp.419–433.