The Hyundai MPG Scandal Gets Worse, Insider Trading Suspected

On the discussion of insider trading, the names Enron, Tyco and any other massive corporate entities come to mind. Which is why it comes to much surprise that South Korean company, Hyundai has been under investigation since early November for insider trading. Over the past decade, entire careers have been created in an attempt to mitigate insider trading. The markets now have a keen eye for such nefarious activities. On November 2nd, Hyundai announced that they had overstated the MPG ratings on 1 million cars bound for North America. The day before, their stock dropped 4%, a total of 2.2 million shares. Million dollar life insurance policies taken out on spouses that disappear shortly after are less obvious than this. Robert Boxwell, director of consulting firm Opera Advisors in Kuala Lumpur, studies suspect trading and insider trading patterns simply states, “This smells pretty bad”. Well said. Boxwell looks at things such as daily trading averages and their movement in the days leading up to a possible market-shifting announcement. He uses a measure of variation called “standard deviation”, Trading of the Hyundai stock was over five standard deviations above the average for the year… in one day. As you might have guessed, the Hyundai spokeswoman pleaded the fifth. Confidence is something that investors need in a company when they put their money into it. When something like this happens, it’s hard for a company to regain its investors’ trust. Just when Hyundai was starting to turn things around with it’s latest competitive line-up, this happens. Are they “too big to fail” or more of the “bigger they are, harder they fall” type? Keep an eye on that stock ticker. Source: Reuters

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