Tuesday, May 15, 2012

What are American Insider Trading Laws?

Insider Trading is a form of deception that is based of 10b5. The toughest part of the inquiry is element 1. The Material Misstatement of Omission.  Insider trading is usually not a misstatement but more like an omission.

1. Insider Trading law - When _____ possess material NON-PUBLIC information, they must disclose or abstain from trading.
2. If you disclose, you can trade away. Disclosure is a remedy for this.
3. NOTE: This information must be material and matter to investors.  You got to wait a little bit of time for the information to hit the market. The market must have a short opportunity to digest info.

A tippee is joint and severally liable for insider trading in two situation.

1. An insider breaches a fiduciary duty in making the tip. Improper Purpose
2. AND, Tippee knows or should know of the insider’s breach.

What is the most important word? Insider? Must determine who has fiduciary duties to the company’s shareholders.  You must base the tippees liability on the insider’s liability.

When does an insider breach a duty? The courts are very specific with insider breach. LOOK FOR IMPROPER PURPOSE= Personal Benefit or a Gift.

Look for kickbacks, personal relationship. Look for the purpose. OBJECTIVE Court has to be convinced by the purpose.

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