Class 15 Insider Trading Flashcards
How do insiders sell shares?
they have a board-approved trading schedule to avoid concerns with insider trading
If insiders cant chose what days they sell shares, how can they still control the market?
the insiders can control when they release information
Who dont we want trading by?
insiders friends and family, bribe situations, anyone that can harm shareholder value
Who do we want trading by?
Information gatherers and intermediaries (analysts, banks, institutional investors)
Dirks v. SEC
Facts: Dirks worked at an investment analysis firm. Secrist was a former officer of a company and told Dirks that the company was involved in fraud. Secrist wanted Dirks to investigate and disclose the fraud publicly. Dirks investigated and discussed the info with clients and investors who sold their holdings of the companys securities.
Salman v. United States
Facts: Maher, the insider disclosed info to his brother Michael and Michael told Salman, his brother in law.
I: Does the Dirk personal benefit test include disclosure to relatives even with no direct connection to the insider?
yes, the intent to benefit a friend or a relative is sufficient to establish a breach of fiduciary duty for trading purposes.
US v. Martoma
Facts: Martoma managed a medical-focused fund. He hired Dr. Sidney Gilman to consult.
Gilman was in charge of FDA approval for a drug (finish)
I: Does tippee liability apply to Martoma? (Martoma didn’t have a duty)
H: yes, a meaningfully close relationship isn’t required, intention to benefit is enough.
R: it is enough under Dirks that the tipper expects to benefit
Dirks v. US was before Reg FD. Would Secrist or Dirks have violated reg FD?
Secrist possibly would have violated. It depends on how former executives are classified. What he acting on behalf of an issuer?
How did Reg FD help/hurt tipping problems?
Did the government need to show how Maher benefitted from the disclosure?
No, its enough with a family relation
