[JacobH]

Bad argument because you stated the problem. Insider trading is bad because of what you pretty much said. Liquidity is only important when considering how fast you want to buy or sell your stakes in a company.

If an insider knows a stock will yield him 10% profit and has a month of time to buy stocks, even if the daily volume is 500k shares. They can gradually buy shares at 20k/day, and once that news becomes public and the liquidy goes up they can sell off all of their shares in one shot pretty much. And people just just got news of the information would think that their stock has a 10% upside, but since someone already beat them to the 10%, they aren't going to get anything.