INSIDER TRADING- 10-b 5(2) Flashcards
INSIDER TRADING (10-b5)2
Trading securities based on material inside information violates SEC rules.
Insiders such as (directors, officer, controlling SH who have relation of trust with the company are prohibited from using confidential information to trade. If insider has non-public information he or she should either disclose to public or abstain from trading.
Classical theory
Prohibits insider from trading their companies stock or sharing inside information with others who then can trade.
The company itself also cannot trade on non-public material information.
An insiders includes directors employee shareholder with material information.
The duty extends to temporary insiders, for example attorneys.(Dirks)
Misappropriation theory
Misappropriation occurs when an outsider uses material non-public information about a corporation to trade his shares while the outsider has a duty of confidentiality towards the source of information.
A duty of confidentiality arises when.
1. there is a duty to keep the information confidential
2. The speaker & the recipient have a relationship where there is a pattern of sharing material information so as to give reasonable expectation of confidentiality.
3. The speaker and the recipient are in spousal, parental or sibling relationship.
Tipper Tippee
Tipper person with fiduciary duty towards the corporation who intentionally discloses non-public information for a personal benefit-gift money, reputation gain (family presumed).
Tippee> not liable if tipper is not first found liable tipee knows or should not the info was disclosed in properly
Remedy disgorgement of profits
Eavesdropping
Whether the insider intentionally shared information others could overhear.
Eavesdroppers unintentionally access his confidential information are generally not liable unless they exploited unknown duty if eavesdropper knows the person and purposely hear then liable
