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Insider Trading
Insider trading is non-public information is used to tell someone to buy or sell based on the corporation’s markets. It may include the purchase or sale of shares prior to the disclosure of a corporate news release or the purchase or sale of shares on the basis of information that would never be disclosed to shareholders. There many cases that have go on because of insider trading and many people have gone to jail. Insider trading occurs in the corporation with those who are close to those with the information that should not be public but to try to save friend and family money. There are also arguments that insider trading should be aloud.
Insider trading accrues with people in high places in a corporation like Corporate officers, directors, and employees who traded the corporation's securities after learning of significant, confidential corporate developments; Friends, business associates, family members, officers, directors, and employees, who traded the securities after receiving such information; Employees of law, banking, brokerage and printing firms who were given such information to provide services to the corporation whose securities they traded; Government employees who learned of such information because of their employment by the government, other persons who misappropriated, and took advantage of, confidential information from their employers.
Cases have arisen of the years and one of the resent cases is the Martha Stewart case. Martha received information from her friend Sam Waksal about the business that she had invested in since the cancer drug was rejected by the food and drug administration before the information became public. Martha had 4000 shares that she had her broker sell. Martha ended up being convicted of conspiracy to obstruct justice. She was sentenced up to six months of jail and the she was stuck under house arrest for a few years. Martha’s friend Sam got 5 years in jail not just for giving information but also conspiracy to obstruct justice.







Trading by "insiders" of a corporation
1. According to the U.S. SEC, corporate insiders are a company's officers, directors and any beneficial owners of more than ten percent of a class of the company's equity securities.
Since insiders are required to report their trades, others often track these traders, and there is a school of investing which follows the lead of insiders. This is of course subject to the risk that an insider is making a buy specifically to increase investor confidence, or making a sell for reasons unrelated to the health of the company (e.g. a desire to diversify or buy a house).
As of December 2005 companies are required by the FEA to announce times to their employees as to when they can safely trade without being accused of trading on inside information.
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Trading on material, non-public information
There are rules against this type of "insider trading" in most jurisdictions around the world, though the details and the efforts to enforce them vary considerably. In the United States, for example, there is no general federal law directly prohibiting insider trading. Authority to prosecute cases of insider trading came from the Supreme Court of the United States' interpretation of Section 10(b) of the Securities Exchange Act of 1934, and in particular of SEC Rule 10b-5, prohibiting fraud in connection with the purchase or sale of securities (see Securities & Exch. Comm'n v. Texas Gulf Sulphur Co., 258 F. Supp. 262 (S.D.N.Y. 1966)). Insider trading has been outlawed in the U.S. since the 1960's.
An example of illegal insider trading may be that you, as an assistant to the chief executive officer, learn that your company is going to be taken over before it is officially disclosed publicly. Knowing that such a move is likely to cause the price to rise, you buy shares in the company and subsequently profit from the transaction. A less dramatic (but still potentially lucrative) example would be trading on the quarterly earnings/losses shortly before they are announced.
In practice, prosecutions for insider trading tend to be rare and difficult to win for a variety of reasons. It can be difficult to prove what the accused actually knew at the time the trades were made -- and people may not even be told directly but merely advised to buy or sell with a nudge and wink. Proving that someone has been responsible for a trade can also be difficult, because a clever trader can hide behind a variety of nominees, companies, and proxies, perhaps located offshore in jurisdictions that do not cooperate with the local authorities. Insider trading is usually performed by the already wealthy, who can afford the best lawyers available and have the resources to drag a case out and cost the prosecutors millions along the way. Finally, the details of... ]]> ~gorik16