Insider Trading Law

Steven Smith&

Kelvin McCray

Insider Trading Law

• Insider Trading Law: the trading of an organizations stocks/other securities by someone with insider information about the company.

• Securities: anything that represents financial value.

Insider Trading Law

• The Insider Trading Law doesn’t necessarily imply that trading by officers, key employers, directors, or large shareholders of the corporation is completely illegal.

• As long as these individuals aren’t using the insider information that they have to benefit themselves in regards to their trading.

Liability for Insider Trading

• Liability for insider trading cannot be passed off to another person who is not an insider of the company.

• For example: CEO of Company A did not trade based on his/her insider knowledge, but instead passed it off to his/her spouse who proceeded to trade on it. This is still considered illegal insider trading.

Who’s Liable?

• Some courts have indicated that a trader may be liable for trading while in knowing possession of insider information, while other courts have required a showing that the trader used the information in the decision to trade.

• The awareness standard reflects the SEC’s belief that a trader inevitably uses the insider information of which it is aware when making a decision to trade. The SEC’s rule is intended to clarify this standard without modifying any other aspect of insider trading case law.

Defenses for Insider Trading

• Before becoming aware of the information the trader entered into a binding contract, gave instructions to another person or adopted a written plan providing for the purchase or sale of the securities in good faith and not in an attempt to evade the new rules

SEC Requirements

• The SEC requires that if a company discloses information to a certain individual, it must also disclose that information to the entire public.

Securities Act of 1933

• The securities act of 1933, also known as truth in securities law, has two basic requirements.

• that investors receive financial and other significant information concerning securities being offered for public sale • prohibit deceit, misrepresentations, and other fraud in

the sale of securities.

• The Securities Act of 1933 was the first major piece of federal legislation regarding the sale of securities.

Important Things to Remember…

• As a Communication Professional…– Remember that if insider information is disclosed

to an individual, make sure it is also released to the public at large.

– Remember that you can still trade your organizations stocks/other securities, as long as you are not using your insider information and trading based on that knowledge.

References

• http://www.investopedia.com/terms/s/securitiesact1933.asp

• http://library.findlaw.com/2000/Aug/1/126524.html>.

•  www.sec.gov/answers/insider.htm• “The Practice of Public Relations” Fraser P.

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