Assignment 3: Freescale Semiconductors, Inc.
Additional laws and harsher penalties can eliminate crimes if the criminal feels that there is a direct relationship between punishment and crime. According to the deterrence theory of crime if there is certainty of punishment, additional laws and harsher penalties will reduce financial fraud or even mitigate it. Additional laws can make punishments more severe and harsher penalties can increase the intensity of punishments. These can be effective only if the enforcement of these laws is efficient and those who perpetrate financial fraud feel that they cannot escape detection if they commit a financial fraud. First, harsh laws and penalties are sometimes long and carry many fines, which makes the offender avoid such cases. For instance, if someone is a businessperson and engages in a financial fraud the time he or she spends behind bars will be long and therefore would have wasted more time than he would have done making clean transaction. Secondly, harsh laws against an offence like felony in a court of law would taint a person’s reputation in the business sector and therefore reduces their chances in any business deals. This would make an offender not want to engage in such acts again having in mind what such acts would be to his business or the entire organization. Lastly engaging in fraud would lead to a termination of employment and contract and therefore would be a limit to employees or executives who would want to engage in financial fraud. The insider trading debate traditionally discusses the pros and cons of insider trading and draws a conclusion about the desirability or undesirability of public regulation of insider trading. One of the most important arguments against insider trading is that it generates agency problems that shareholders cannot resolve and that, therefore, insider trading should be publicly regulated. We have challenged this argument for failing to engage in comparative institutional analysis. We argued that when the negative aspects of insider trading, namely, the agency problems that it may create, are considered, it is necessary to engage in comparative institutional analysis and how these problems can be resolved under two different economic systems: the market economy and interventionism. We have been led to the conclusion that under a market economy, shareholders do have mechanisms to protect themselves against agency problems generated by insider trading and that these problems are reduced to a minimum. We have shown that interventionism hampers the functioning and reduces the disciplinary role of such mechanisms. Therefore, insiders have indeed more latitude to engage in these discretionary behaviors, pointed out by the supporters of the insider-trading-as-an-agency-problem argument, that harm shareholders. Finally, we have shown that the failures of government regulation reinforce this tendency of insiders’ behavior. We conclude that we cannot justify a public regulation of insider trading based on the insider-trading-as-agency-problem argument. First, a new strategy the government can implement to eliminate or mitigate insider trading is to establish a confidential helpline where a person can anonymously provide information relating insider trading to Securities Exchange Commission. Second, the broker firms are first to know when insider trading takes place. It should be made mandatory for broker firms to report insider trading. If they fail to provide information they should be suspended from trading. The broker firms should be given specific criteria to use to judge if insider trading has taken place. Third, cash awards should be instituted for correctly reporting insider trading operations. In the case study Gansman leaked the information to Donna Murdoch relating to mergers and acquisitions. The key internal controls needed over the communication of confidential information to outside...
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