Great Columns On Insider Trading ...

A must-read.

Inside Insider Trading - Ideas On Liberty: "What happens when insiders are not allowed to trade on an important piece of news? That news will get out eventually, and the first people to find out about it will be outsiders just beyond the gates. These will very likely be securities analysts, whose full-time job is to keep abreast of developments in public companies. So they, the firms they work for, and their clients would be the first to benefit from the news. The news will eventually reach most shareholders, but later than it would otherwise. Instead of early profits accruing to insiders, they will accrue to professionals, and this makes no difference to most shareholders, especially long-term shareholders. During a time when the dissemination of significant news about a company is blocked by insider-trading restrictions, that company’s shares are mispriced relative to where the price would be if the news were out. If the news is bad investors will buy at prices they would not have paid had they heard the news. Movement of capital toward more productive uses is inhibited. If it is good some sellers will let go of their shares at prices they would not have accepted had they heard. Movement of capital toward such firms is inhibited. In either case there is a net loss to the economy."

Additional links:
Learning to Love Insider Trading - WSJ.com
Insider-Trading Prohibitions Should Go out of Style
A Reflection on Insider Trading and Confidence in Markets