Insider trading is the trading of a public company's stock or other securities based on material, nonpublic information about the company. In various countries, some kinds of trading based on insider information are illegal. This is because it is seen as unfair to other investors who do not have access to the information, as the investor with insider information could potentially make larger profits than a typical investor could make. The rules governing insider trading are complex and vary significantly from country to country. The extent of enforcement also varies from one country to another. The definition of insider in one jurisdiction can be broad and may cover not only insiders themselves but also any persons related to them, such as brokers, associates, and even family members. A person who becomes aware of non-public information and trades on that basis may be guilty of a crime.
The U.S. Securities and Exchange Commission (SEC) is an independent agency of the United States federal government, created in the aftermath of the Wall Street Crash of 1929. The primary purpose of the SEC is to enforce the law against market manipulation.
The Sarbanes–Oxley Act of 2002 is a United States federal law that mandates certain practices in financial record keeping and reporting for corporations.
The Securities Act of 1933, also known as the 1933 Act, the Securities Act, the Truth in Securities Act, the Federal Securities Act, and the '33 Act, was enacted by the United States Congress on May 27, 1933, during the Great Depression and after the stock market crash of 1929. It is an integral part of United States securities regulation. It is legislated pursuant to the Interstate Commerce Clause of the Constitution.
In corporate finance, a tender offer is a type of public takeover bid. The tender offer is a public, open offer or invitation by a prospective acquirer to all stockholders of a publicly traded corporation to tender their stock for sale at a specified price during a specified time, subject to the tendering of a minimum and maximum number of shares. In a tender offer, the bidder contacts shareholders directly; the directors of the company may or may not have endorsed the tender offer proposal.
SEC Rule 10b-5, codified at 17 CFR 240.10b-5, is one of the most important rules targeting securities fraud promulgated by the U.S. Securities and Exchange Commission, pursuant to its authority granted under § 10(b) of the Securities Exchange Act of 1934. The rule prohibits any act or omission resulting in fraud or deceit in connection with the purchase or sale of any security. The issue of insider trading is given further definition in SEC Rule 10b5-1.
Securities regulation in the United States is the field of U.S. law that covers transactions and other dealings with securities. The term is usually understood to include both federal and state-level regulation by governmental regulatory agencies, but sometimes may also encompass listing requirements of exchanges like the New York Stock Exchange and rules of self-regulatory organizations like the Financial Industry Regulatory Authority (FINRA).
TSC Industries, Inc. v. Northway, Inc., 426 U.S. 438 (1976), was a case in which the Supreme Court of the United States articulated the requirement of materiality in securities fraud cases.
The Williams Act (USA) refers to 1968 amendments to the Securities Exchange Act of 1934 enacted in 1968 regarding tender offers. The legislation was proposed by Senator Harrison A. Williams of New Jersey.
The mosaic theory in finance involves the use of security analyst personnel to gather information about a company or corporation to evaluate and determine its financial stability. In addition to public information available to all investors, securities analysts also have access to non-public information which the vast majority of investors do not possess. Trading based on such non-public information can be considered illegal if the information is also material, as defined by insider trading laws.
United States corporate law regulates the governance, finance and power of corporations in US law. Every state and territory has its own basic corporate code, while federal law creates minimum standards for trade in company shares and governance rights, found mostly in the Securities Act of 1933 and the Securities and Exchange Act of 1934, as amended by laws like the Sarbanes–Oxley Act of 2002 and the Dodd–Frank Wall Street Reform and Consumer Protection Act. The US Constitution was interpreted by the US Supreme Court to allow corporations to incorporate in the state of their choice, regardless of where their headquarters are. Over the 20th century, most major corporations incorporated under the Delaware General Corporation Law, which offered lower corporate taxes, fewer shareholder rights against directors, and developed a specialized court and legal profession. Nevada has attempted to do the same. Twenty-four states follow the Model Business Corporation Act, while New York and California are important due to their size. The United States corporation was made by the nation state Vatican in 1851
Basic Inc. v. Levinson, 485 U.S. 224 (1988), was a case in which the Supreme Court of the United States articulated the "fraud-on-the-market theory" as giving rise to a rebuttable presumption of reliance in securities fraud cases.
The Investor Protections and Improvements to the Regulation of Securities is a United States Act of Congress, which forms Title IX, sections 901 to 991 of the much broader and larger Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010. Its main purpose is to revise the powers and structure of the Securities and Exchange Commission, credit rating organizations, and the relationships between customers and broker-dealers or investment advisers. This title calls for various studies and reports from the SEC and Government Accountability Office (GAO). This title contains nine subtitles.
Wharf Holdings Ltd. v. United Int'l Holdings, Inc., 532 U.S. 588 (2001), was a United States Supreme Court case decided in 2001. The case concerned a provision of the Securities Exchange Act of 1934 dealing with manipulating and evading rules set by the SEC. The Court concluded that a secret understanding to violate an arrangement under the Act still constituted a violation, rejecting an argument that oral contracts were categorically excluded from the provision's coverage.
Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27 (2011), is a decision by the Supreme Court of the United States regarding whether a plaintiff can state a claim for securities fraud under §10(b) of the Securities Exchange Act of 1934, as amended, 15 U.S.C. §78j(b), and Securities and Exchange Commission Rule 10b-5, 17 CFR §240.10b-5 (2010), based on a pharmaceutical company's failure to disclose reports of adverse events associated with a product if the reports do not find statistically significant evidence that the adverse effects may be caused by the use of the product. In a 9–0 opinion delivered by Justice Sonia Sotomayor, the Court affirmed the Court of Appeals for the Ninth Circuit's ruling that the respondents, plaintiffs in a securities fraud class action against Matrixx Initiatives, Inc., and three Matrixx executives, had stated a claim under §10(b) and Rule 10b-5.
Paul Alec Bilzerian is an American businessman and corporate takeover specialist.
Credit Suisse Securities (USA) LLC v. Simmonds, 566 U.S. 221 (2012), is a United States Supreme Court decision regarding the limitation period for insider trading claims. The court ruled in an 8-0 unanimous opinion that the limitation period was subject to traditional equitable tolling. Chief Justice John Roberts recused himself from the case.
United States v. O'Hagan, 521 U.S. 642 (1997), was a United States Supreme Court case concerning insider trading and breach of U.S. Securities and Exchange Commission Rule 10(b) and 10(b)-5. In an opinion written by Justice Ruth Bader Ginsburg, the Court held that an individual may be found liable for violating Rule 10(b)-5 by misappropriating confidential information. The Court also held that the Securities and Exchange Commission did not exceed its rulemaking authority when it adopted Rule 14e-3(a), "which proscribes trading on undisclosed information in the tender offer setting, even in the absence of a duty to disclose".
SEC v. Texas Gulf Sulphur Co. is a case from the United States Court of Appeals for the Second Circuit which articulated standards for a number of aspects of insider trading law under Section 10(b) of the Securities Exchange Act and SEC Rule 10b-5. In particular, it set out standards for materiality of inside information, effective disclosure of such information, and what constitutes a "misleading" statement. Texas Gulf Sulphur represented the first time a federal court held that insider trading violated federal securities law and remained the leading case on insider trading for a decade. Over time, the U.S. Supreme Court embraced some of its holdings while rejecting others. The case continues to receive significant scholarly attention.
Lorenzo v. Securities and Exchange Commission, 587 U.S. ___ (2019), was a United States Supreme Court case from the October 2018 term.
