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Insider Trading

The document provides an order of analysis for analyzing potential insider trading violations under 10b-5. It begins with determining liability for those who directly traded based on inside information under the classical and misappropriation theories. It then examines liability for tippees who traded and those who tipped but did not trade themselves. For tippers and tippees, it analyzes whether the information was improperly disclosed in exchange for a personal benefit. Finally, it addresses potential liability for sharing inside information without trading based on whether the sharing was done to receive a personal benefit, making it equivalent to trading.

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matt
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431 views1 page

Insider Trading

The document provides an order of analysis for analyzing potential insider trading violations under 10b-5. It begins with determining liability for those who directly traded based on inside information under the classical and misappropriation theories. It then examines liability for tippees who traded and those who tipped but did not trade themselves. For tippers and tippees, it analyzes whether the information was improperly disclosed in exchange for a personal benefit. Finally, it addresses potential liability for sharing inside information without trading based on whether the sharing was done to receive a personal benefit, making it equivalent to trading.

Uploaded by

matt
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Order of Analysis:

10b-5 Insider Trading -Start with the people who actually traded:
Are they liable under the classical theory?
If not, liable under misappropriation theory?
-Insiders trading on info
-Then, go to the people who didn't trade but shared info.
-Tippees trading on info
Did the person tip? Did they share info to get a personal
-Tippees, no trade, but pass
benefit? If so, that's tantamount to trading = so are they
along information to trader
liable under classical theory? misappropriation theory?

a] What type of information does Misappropriation/Duty Theory Tippee Theory What if the person did not actually trade but
the person have? b1] Does the person have a duty? b2] was the person a tippee [recipient of info]? just shared information?

Classical Theory: corporate insider?


[1] Was the information tainted?
Fiduciary relationship between company's
Is it MATERIAL? -Did the insider improperly disclose the info to the tippee Did the person "tip" i.e. give the information in order to get
insider and purchaser/seller of stock.
Would a reasonable investor find it of actual in order to obtain a personal benefit, directly or indirectly a personal benefit for herself?
-The insider owes a fiduciary duty to the *Absent personal gain for tipper, no tippee liability If so = tantamount to trading, go to liability test for trading
significance? shareholders of the corporation
balance [1] the indicated probability the Gain can be intangible; doesn't have to be monetary. = look to classical theory & misappropriation theory.
-Applies to officers & directors as well as
event will occur and [2] the anticipated Gift of valuable confidential information without any
attorneys, accountants, etc who termporarily
magnitude of the event in light of the totality compensation to someone you have very close
become fiduciaries of a corp
of the company activity relationship with = tipper is getting a personal benefit

Outsider Duty/Misappropriation Theory [2] Did the tippee know or should know there was a
Liability when one trades in another company breach & traded on inside info?
Is it NONPUBLIC at time of trade [timing that they have no connection to;
crucial]? No duty if info is public. -Tippee knew the trading was impermissible
[1] trader received material nonpublic
Availability rule: even if released, has the
information from someone to whom he owed a
market/investing public had time to digest
duty of trust or confidence [feigned fidelity to
the information?
the source of the info] AND [2] used the info to
get a trading advantage for himself without
informing the source of his info
[1] All fiduciary relationships;
[2] Confidentiality agreement;
[3] Relationship traditionally considered
confidential - people have practice of sharing
If BOTH, continue. confidences such that recipient of info knows
Covered information + duty/tippee = disclose or
or reasonably should know the speaker abstain.
expects the recipient to maintain the info's
Disclose or Abstain Rule: when person has inside
confidentiality [lawyer/client, doc/patient]
information + a duty, he must either disclose the
[4] Info is received from spouse/sibling/parent
information to the other party or abstain from using it for
trading.

ANY PERSON with information on a TENDER


OFFER has a duty under 14[e][3] to not trade.
if a person or corporation has taken a
“substantial step” to commence a tender offer,
then it is illegal for anyone who has heard of
the tender offer and knows or should know
that the information came from the offeror, the
offeree, or an employee of either, to trade in
the securities of the offeree.

IF one of these three duties exists; go


to disclose/abstain; if NOT, go to
tippee

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