Ethics Essay Treasury Secretary Henry Merritt “Hank” Paulson revealed inside information with regards to the plans made by the government to takeoverFannie Mae and Freddie Mac, which are government mortgage servicers. The information was revealed by Former Treasury Secretary Hank Paulson to the top hedge fund executives during the times of financial meltdown. Hank Paulson addressed the issues in a meeting that took place in Manhattan, at the hedge funds headquarters and informed the fund managers that government might seize Fannie Mae and Freddie Mac and might annihilate their stocks (Teitelbaum, “Personal Finance”). It can be stated that the case is related to insider trading.
Most of the legal experts revealed that the issue revealed by Hank Paulson cannot be considered as illegal since although Hank Paulson shared sensitive data, he did not derive any personal profits from such trading. However, when viewed from legal viewpoints such acts of any individual can be considered as wrong doing and is completely illegal. It was noted that quasi government agencies which had ‘mortgage-backed securities’ together with other debts offered the hedge fund insiders to make huge profits that they made from the inside information which was shared with them by Hank Paulson.
Ethically, such issues can be considered as wrong because it may weaken the trust in vital public institutions such as the Department of Treasury. The impact of the disclosure of such material related to non-public information would be that the clients would stop trading the shares of Fannie Mae and Freddie Mac and some of the groups of managers might be profited off because of the information that was provided by Hank Paulson.
The only party at fault has been Hank Paulson and it can be stated that since the information had not actually been used by the fund managers for their benefits, therefore they are not at fault. Hank Paulson must be reprimanded for his unethical behavior and for violating the laws. The reason for reprimand is the unethical behavior of Hank Paulson and his intentions to harm the interest of the department. If reprimand does take place, then it would prevent any person from taking such illegal actions in the near future and by taking stringent measures, government and companies can prevent such abusive market activities from taking place.
Punitive actions need to be taken against Hank Paulson for the unethical acts. It has been found that insider trading has always undermined the proficient as well as efficient functioning of free market. It is also considered as economically inefficient. Insider trading is generally exploitation of the information and therefore no one must be benefited because of such exploitations. Section 10(b) and 14(e) of the Securities Exchange Act of 1939 has offered Securities and Exchange Commission (SEC) the power to seek a court order that demands the violators to return back their trading profits.
Though the case of insider trading conducted by Hank Paulson was not much severe, he must still be penalized for the offence committed. He must also be taken out from the position that he holds in the department (University of Cincinnati, “Securities Lawyers Desktop”). It can be concluded that it is quite significant for the companies to prevent insider trading from taking place because it tends to have an enduring detrimental impact on the offenders.
It is significant for the companies’ to train the employees to understand the ill effects of insider trading (Barr, “Outside Counsel”). Works Cited Barr, Evan, T. “Outside Counsel”. January 21, 2012. Insider Trading: Making Punishment Fit The Crime, 2005. Teitelbaum, Richard. “Personal Finance”. January 21, 2012. How Paulson Gave Hedge Funds Advance Word of Fannie Mae Rescue, 2011.. University of Cincinnati. “Securities Lawyers Desktop”. January 21, 2012. Section 21A -- Civil Penalties for Insider Trading, 2011.