imagine an insider knows a product is going to tank, so she sells all of her shares before everyone else.
at that point of sale, the reality is the product sucks. but the market still reflects the price of a good product. so they know reality before everyone else, keep everyone else in fantasy, and trade at the fantasy price.
it further undermines the market bc no one will invest in companies who bail out with at the high price and leave them holding the bag. e.g. if someone asked me to buy 1k shares @ $100 each and i buy them: the product is a dud in R&D. the insiders all sell near the $100 price, the product is a dud in the market, share prices tanks to $30.
Next my "friend" asks me to invest I tell him to pound sand.
at that point of sale, the reality is the product sucks. but the market still reflects the price of a good product. so they know reality before everyone else, keep everyone else in fantasy, and trade at the fantasy price.
it further undermines the market bc no one will invest in companies who bail out with at the high price and leave them holding the bag. e.g. if someone asked me to buy 1k shares @ $100 each and i buy them: the product is a dud in R&D. the insiders all sell near the $100 price, the product is a dud in the market, share prices tanks to $30.
Next my "friend" asks me to invest I tell him to pound sand.