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Comment by darkpuma | Hacker News Reader

I once read an argument (maybe here on HN, I'm not sure) that if insider trading were legal, Enron wouldn't have taken anybody by surprise. I'm not sure I buy the argument that it should consequently be legal, but it's an interesting idea.

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On the other hand, consider how rare the Enron case seems to be. Since it's implosion, how many other companies were based on total fraud? Theranos is all that comes to mind and it wasn't even public.

It seems like the system mostly prevents massive Enron style fraud.

You mean, how many companies have been outed as being based on total fraud.

heaps of public companies turn out to be frauds, there is an entire industry out there of people spotting fraudulent stocks and shorting them (see Muddy Waters, Citron research et al)

Sino-Forest has probably been the largest and most well known (as well as Valeant and their fake pharmacies) along with a bunch of Chinese small-medium-cap reverse IPO's like CCME

Total fraud isn't the only sort of corporate fraud though. Legalized insider trading would really open the floodgates for financially incentivized 'whistle-blowing' of any sort of fraud (as well as basically anything else that could conceivably move the market...)

Tyco, WorldCom, Healthsouth, Adelphia, Lehman Brothers, Freddie Mac, AIG, Bernie Madoff... Shall I go on?

Trump.

That's an interesting idea! Finding the 'victim' in insider trading is complicated as well because it is typically someone who would have made a trade but didn't, so how do you know who they are?

There was a Planet Money podcast about this [0] that if I remember correctly said it wasn't even explicitly illegal in the US until relatively recently. It was considered theft to take insider knowledge, but not illegal to trade on it.

[0] I think it's this one: https://www.npr.org/sections/money/2015/12/23/460689797/epis...

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