Insider Trading - Revision history

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← Older revision		Revision as of 20:04, 10 March 2024
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	== References ==		== References ==
	<references/>		<references/>
		+
		+
		+	== Popular Articles ==
		+	<div style="column-count:4;-moz-column-count:4;-webkit-column-count:4">
		+	*[[Personnel Management]]
		+	*[[Architecture Development Method (ADM)]]
		+	*[[IT Operating Model]]
		+	*[[Strategic Intent]]
		+	*[[Data Governance]]
		+	*[[Business Capability]]
		+	*[[IT Strategic Plan (Information Technology Strategic Plan)]]
		+	*[[IT Ecosystem]]
		+	*[[Information Technology (IT)]]
		+	*[[International Accounting Standards Board (IASB)]]
		+	*[[Economic Value Added (EVA)]]
		+	*[[Strategic Business Unit]]
		+	*[[Business Process Architecture]]
		+	*[[Configuration Item (CI)]]
		+	*[[IT Operations Management (ITOM)]]
		+	*[[Organizational Goals]]
		+	*[[Business Process Engineering (BPE)]]
		+	</div>

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 *A board member of a corporation buys 5,000 shares of stock in the corporation. The trade is reported to the Securities and Exchange Commission.
-'''Illegal Insider Trading Examples'''
+'''Illegal Insider Trading Examples'''<br />
 Illegal insider trading is very different than legal insider trading. A person who engages in illegal insider trading may work for the company that he buys the stock for, but does not necessarily have to. The key is that the person who buys or sells the stock acts on insider information (not public information) in violation of the law. Examples include:
 *A lawyer representing the CEO of a company learns in a confidential meeting that the CEO is going to be indicted for accounting fraud the next day. The lawyer shorts 1,000 shares of the company because he knows that the stock price is going to go way down on news of the indictment.

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 There are different penalties for insider trading in a different jurisdiction. Prison, charging a fine or both are the punishment for insider trading. An investor can have any of the punishment if caught for insider trading. According to the U.S. Securities and Exchange Commission (SEC), an investor may have a maximum fine of $5 million and up to 20 years of imprisonment for this.
 == References ==
 <references/>

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 '''Insider Trading''' is using information not publicly available and which has been received illicitly to make trade decisions.
 == What is Insider Trading ==
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 '''U.S. vs. O'Hagan'''<br />
 James O'Hagan was a lawyer with the firm of Dorsey & Whitney in 1988. The firm began representing Grand Metropolitan PLC, which planned to launch a tender offer for Pillsbury. O'Hagan subsequently acquired a large number of options in the company, knowing that the options would soar following the announcement of the tender offer. O'Hagan eventually sold his options and realized a $4.3 million gain. He chose to acquire the options based on information that wasn't available to other investors and did so without informing his firm. He was found guilty on 57 charges, but his conviction was overturned on appeal.

@@ Line 19: / Line 19: @@
-[[File:Insider Trading Prevention.png|300pxStrategies to Prevent Insider Trading]]<br />
+[[File:Insider Trading Prevention.png|600px|Strategies to Prevent Insider Trading]]<br />
 source: Diligent Insights
-== Examples of Insider Trading [https://examples.yourdictionary.com/examples-of-insider-trading.html Your Dictionary]</ref> ==
+== Examples of Insider Trading<ref>Examples of Insider Trading [https://examples.yourdictionary.com/examples-of-insider-trading.html Your Dictionary]</ref> ==
 '''Legal Insider Trading Examples'''<br />
 The Securities and Exchange Commission explains that while most people hear the words "insider trading" and think of the illegal act, "insider trading" can also be legal under some circumstances. Examples of insider trading that are legal include:
@@ Line 37: / Line 37: @@
 *A government employee is aware that a new regulation is going to be passed that will significantly benefit an electricity company. The government employee secretly buys shares of the electricity company and then pushes for the regulation to go through as quickly as possible.
 *A corporate officer learns of a confidential merger between his company and another lucrative business. Knowing that the merger will require the purchase of shares at a high price, the corporate officer buys the stock the day before the merger is going to go through.
 ===Real-life Examples of Insider Trading<ref>Real-life Examples of Insider Trading [https://corporatefinanceinstitute.com/resources/knowledge/trading-investing/what-is-insider-trading/ CFI]</ref>===
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 *Yoshiaki Murakami: In 2006, Yoshiaki Murakami made $25.5 million by using non-public material information about Livedoor, a financial services company that was planning to acquire a 5% stake in Nippon Broadcasting. His fund acted upon this information and bought two million shares.
 *Raj Rajaratnam: Raj Rajaratnam made about $60 million as a billionaire hedge fund manager by swapping tips with other traders, hedge fund managers, and key employees of IBM, Intel Corp, and McKinsey & Co. He was found guilty of 14 counts of conspiracy and fraud in 2009 and fined $92.8 million.
 ===Notable Happenings<ref>Notable Happenings in Insider Trading [https://www.thebalance.com/what-is-insider-trading-and-why-is-it-illegal-356337 the Balance]</ref>===

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 '''Insider Trading''' is using information not publicly available and which has been received illicitly to make trade decisions.
 The U.S. Securities and Exchange Commission (SEC) defines illegal insider trading as:<br />
 ''"The buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, on the basis of material, nonpublic information about the security."''<br />
 Material information is any information that could substantially impact an investor's decision to buy or sell the security. Non-public information is information that is not legally available to the public. The question of legality stems from the SEC's attempt to maintain a fair marketplace. An individual who has access to insider information would have an unfair edge over other investors, who do not have the same access, and could potentially make larger, unfair profits than their fellow investors. Illegal insider trading includes tipping others when you have any sort of material nonpublic information. Legal insider trading happens when directors of the company purchase or sell shares, but they disclose their transactions legally. The Securities and Exchange Commission has rules to protect investments from the effects of insider trading. It does not matter how the material nonpublic information was received or if the person is employed by the company. For example, suppose someone learns about nonpublic material information from a family member and shares it with a friend. If the friend uses this insider information to profit in the stock market, then all three of the people involved could be prosecuted.<ref>Definition - What Does Insider Trading Mean? [https://www.investopedia.com/terms/i/insidertrading.asp Investopedia]</ref>
@@ Line 12: / Line 15: @@
-Strategies to Prevent Insider Trading<ref>Five Strategies to Prevent Insider Trading [https://insights.diligent.com/insider-trading/how-control-insider-trading Dilingent Insights]</ref><br />
+== Strategies to Prevent Insider Trading<ref>Five Strategies to Prevent Insider Trading [https://insights.diligent.com/insider-trading/how-control-insider-trading Dilingent Insights]</ref> ==
 Insider trading has been a buzzword for the last two decades. We think of New York Congressman Christopher Collins, Martha Stewart and the bacchanalia of Martin Scorsese’s The Wolf of Wall Street. Little discussed, however, is that the greatest risk facing corporations with respect to insider trading is not greed or malicious intent, but negligence. Most instances of insider trading are preventable, at least on a corporate level. There are checks and balances that can be installed to insulate the corporation from allegations of wrongdoing in cases of insider trading – the non-negative returns on which can be substantial. Although corporate criminal fines for insider trading are capped at $25 million, the penalties for other charges associated with insider trading activities can far exceed this number.1 With that in mind, illustrated below are five best practices to prevent illegal insider trading:
-[[File:Insider Trading Prevention.png|500pxStrategies to Prevent Insider Trading]]<br />
+[[File:Insider Trading Prevention.png|300pxStrategies to Prevent Insider Trading]]<br />
 source: Diligent Insights

← Older revision		Revision as of 19:00, 26 March 2021
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	Sometimes people outside of a company can run afoul of these laws, as well, using information obtained from those on the inside to seek a profit, even if the insider does not directly profit. In these situations, there is a “tipper” and a “tippee.” The tipper is the person who has broken his or her fiduciary duty by intentionally revealing confidential information to outsiders. The tippee is the person who knowingly uses that confidential information to make a trade for purposes of turning a profit or avoiding a financial loss. Obviously, the reason insider trading is illegal is because it gives the insider an unfair advantage in the market, puts the interests of the insider above those to whom he or she owes a fiduciary duty, and allows an insider to artificially influence the value of a company's stocks.<ref>Explaining Insider Trading [https://www.hg.org/legal-articles/what-is-insider-trading-and-why-is-it-illegal-31598 HG.Org]</ref>		Sometimes people outside of a company can run afoul of these laws, as well, using information obtained from those on the inside to seek a profit, even if the insider does not directly profit. In these situations, there is a “tipper” and a “tippee.” The tipper is the person who has broken his or her fiduciary duty by intentionally revealing confidential information to outsiders. The tippee is the person who knowingly uses that confidential information to make a trade for purposes of turning a profit or avoiding a financial loss. Obviously, the reason insider trading is illegal is because it gives the insider an unfair advantage in the market, puts the interests of the insider above those to whom he or she owes a fiduciary duty, and allows an insider to artificially influence the value of a company's stocks.<ref>Explaining Insider Trading [https://www.hg.org/legal-articles/what-is-insider-trading-and-why-is-it-illegal-31598 HG.Org]</ref>
		+
		+
		+	Strategies to Prevent Insider Trading<ref>Five Strategies to Prevent Insider Trading [https://insights.diligent.com/insider-trading/how-control-insider-trading Dilingent Insights]</ref><br />
		+	Insider trading has been a buzzword for the last two decades. We think of New York Congressman Christopher Collins, Martha Stewart and the bacchanalia of Martin Scorsese’s The Wolf of Wall Street. Little discussed, however, is that the greatest risk facing corporations with respect to insider trading is not greed or malicious intent, but negligence. Most instances of insider trading are preventable, at least on a corporate level. There are checks and balances that can be installed to insulate the corporation from allegations of wrongdoing in cases of insider trading – the non-negative returns on which can be substantial. Although corporate criminal fines for insider trading are capped at $25 million, the penalties for other charges associated with insider trading activities can far exceed this number.1 With that in mind, illustrated below are five best practices to prevent illegal insider trading:
		+
		+
		+	[[File:Insider Trading Prevention.png\|500pxStrategies to Prevent Insider Trading]]<br />
		+	source: Diligent Insights

← Older revision		Revision as of 16:08, 25 March 2021
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	''"The buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, on the basis of material, nonpublic information about the security."''<br />		''"The buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, on the basis of material, nonpublic information about the security."''<br />
	Material information is any information that could substantially impact an investor's decision to buy or sell the security. Non-public information is information that is not legally available to the public. The question of legality stems from the SEC's attempt to maintain a fair marketplace. An individual who has access to insider information would have an unfair edge over other investors, who do not have the same access, and could potentially make larger, unfair profits than their fellow investors. Illegal insider trading includes tipping others when you have any sort of material nonpublic information. Legal insider trading happens when directors of the company purchase or sell shares, but they disclose their transactions legally. The Securities and Exchange Commission has rules to protect investments from the effects of insider trading. It does not matter how the material nonpublic information was received or if the person is employed by the company. For example, suppose someone learns about nonpublic material information from a family member and shares it with a friend. If the friend uses this insider information to profit in the stock market, then all three of the people involved could be prosecuted.<ref>Definition - What Does Insider Trading Mean? [https://www.investopedia.com/terms/i/insidertrading.asp Investopedia]</ref>		Material information is any information that could substantially impact an investor's decision to buy or sell the security. Non-public information is information that is not legally available to the public. The question of legality stems from the SEC's attempt to maintain a fair marketplace. An individual who has access to insider information would have an unfair edge over other investors, who do not have the same access, and could potentially make larger, unfair profits than their fellow investors. Illegal insider trading includes tipping others when you have any sort of material nonpublic information. Legal insider trading happens when directors of the company purchase or sell shares, but they disclose their transactions legally. The Securities and Exchange Commission has rules to protect investments from the effects of insider trading. It does not matter how the material nonpublic information was received or if the person is employed by the company. For example, suppose someone learns about nonpublic material information from a family member and shares it with a friend. If the friend uses this insider information to profit in the stock market, then all three of the people involved could be prosecuted.<ref>Definition - What Does Insider Trading Mean? [https://www.investopedia.com/terms/i/insidertrading.asp Investopedia]</ref>
		+
		+	The Securities and Exchange Commission (SEC) is the government agency responsible for monitoring these kinds of transactions. It has adopted rules regarding insider trading that define it as any securities transaction made when a person involved in the trade has nonpublic, material information, and uses this information to violate his or her duty to maintain the confidentiality of such knowledge by using it for financial gain.
		+
		+	Insider information is “material” if its release would affect a company's stock price. For example, the announcement of a tender offer, a pending merger, a positive earnings report, the pending release of a new product, etc. A person is defined as an “insider” if they have a relationship with a business that makes them privy to information that has yet to be released to the public. Insiders are expected to maintain a fiduciary relationship with their companies and shareholders, and trying to profit from insider information puts the insider's interests above those of the entities to whom they owe this duty.
		+
		+	Sometimes people outside of a company can run afoul of these laws, as well, using information obtained from those on the inside to seek a profit, even if the insider does not directly profit. In these situations, there is a “tipper” and a “tippee.” The tipper is the person who has broken his or her fiduciary duty by intentionally revealing confidential information to outsiders. The tippee is the person who knowingly uses that confidential information to make a trade for purposes of turning a profit or avoiding a financial loss. Obviously, the reason insider trading is illegal is because it gives the insider an unfair advantage in the market, puts the interests of the insider above those to whom he or she owes a fiduciary duty, and allows an insider to artificially influence the value of a company's stocks.<ref>Explaining Insider Trading [https://www.hg.org/legal-articles/what-is-insider-trading-and-why-is-it-illegal-31598 HG.Org]</ref>

← Older revision		Revision as of 15:57, 25 March 2021
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−	'''~~Content Coming Soon~~'''	+	'''Insider Trading''' is using information not publicly available and which has been received illicitly to make trade decisions.
		+
		+	The U.S. Securities and Exchange Commission (SEC) defines illegal insider trading as:<br />
		+	''"The buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, on the basis of material, nonpublic information about the security."''<br />
		+	Material information is any information that could substantially impact an investor's decision to buy or sell the security. Non-public information is information that is not legally available to the public. The question of legality stems from the SEC's attempt to maintain a fair marketplace. An individual who has access to insider information would have an unfair edge over other investors, who do not have the same access, and could potentially make larger, unfair profits than their fellow investors. Illegal insider trading includes tipping others when you have any sort of material nonpublic information. Legal insider trading happens when directors of the company purchase or sell shares, but they disclose their transactions legally. The Securities and Exchange Commission has rules to protect investments from the effects of insider trading. It does not matter how the material nonpublic information was received or if the person is employed by the company. For example, suppose someone learns about nonpublic material information from a family member and shares it with a friend. If the friend uses this insider information to profit in the stock market, then all three of the people involved could be prosecuted.<ref>Definition - What Does Insider Trading Mean? [https://www.investopedia.com/terms/i/insidertrading.asp Investopedia]</ref>