[by Larry Goldfarb]

Most people agree that there is an epidemic of insider trading.  Movie stars, television personalities, senior corporate executives or anyone looking to make a few extra dollars.  But it is clearly not necessarily only about the money. 

The Raj Rajaratnam case seemed to bring out many other reasons including people looking to impress.  For instance, Robert Moffat, who was a top manager at IBM and  was considered a candidate for CEO. Then he met Wall Street analyst Danielle Chiesi. Chiesi, the busty Bear Stearns technology analyst who was complicit in the generating information for Rajaratnam from IT shops.   Moffat began feeding her information, not for the money, but to impress someone he wanted to sleep with.  In the end, Moffat’s career was ruined and his marriage was destroyed. 

Another reason to perpetrate insider trading is “its your right.”  The scenario is that you own a block of stock and have a relationship with the CEO.  When the stock declines because of an event or an announcement, it’s the CEO’s responsibility to inform the friend.  The situation has played out dozens of time, most recently with Martha Stewart and Mark Cuban.  Both situatons turned out not be specifically insider trading, but Stewart was snagged on lying to investigators and Cuban’s case is still being appealed.

But for all of the reasons that have been mentioned, or could have been noted, money or the promise of money seems to be the primary cause.   Two cases filed last week by the Securities and Exchange Commission epitomize just how quickly some have jumped at the opportunity to profit from confidential information.  In one case, two information technology workers learned that their company was involved in merger negotiations when one helped the chief executive figure out how to attach confidential deal documents to an e-mail. The other involved a husband learning about a confidential acquisition from his wife, who is a lawyer, after an event with a client's general counsel was canceled on short notice.

In both situations, the defendants bought stock in the companies involved in the deals the day after learning the confidential information, showing virtually no compunction about violating the law. Nor does it appear they did much to conceal their actions - they used accounts in their own names to buy and sell shares.

Did the desire for quick profits simply cloud their better judgment, or is insider trading something people do not consider to be wrongful?

While some have questioned the scope of the insider trading prohibition, there is a general public perception that it is wrongful. Stuart P. Green, a Rutgers law professor, and Matthew B. Kugler, a psychologist, conducted a survey about when trading on confidential information should be punished. Their article in The Fordham Urban Law Journal concluded that it was "only when the trader obtained the confidential information in some presumably illicit manner, such as by appropriating it from his employer or client, that our subjects regarded it as clearly worthy of prohibition and censure."

Insider trading is a violation that involves cheating by taking advantage of access to confidential information along with a strong dose of greed to overcome the usual moral constraint against engaging in illegal conduct. There is no easily identifiable victim in insider trading, so it can be easy to justify it to oneself because no individual is actually losing money in the process, just the faceless mass of traders in the market.

The fact that some people appear to be willing, and even eager, to trade on confidential information when presented the opportunity shows that sometimes any constraints on acting illegally can be easily overcome.

For more information, please read, [Dealbook, 2/11/13, Fortune, 7/6/10]