We’ve spent a few episodes talking about insider trading when the trader owes a fiduciary duty to the company whose securities are being traded. But what if the trader isn’t connected to the company? Enter the misappropriation theory of insider trading liability:
Having covered corporate officers and temporary insiders, we now turn briefly to regular employees, still under the classical theory of insider trading liability.
In the last episode of the Insider Trading Cartoon Series, we discussed temporary insiders and their potential liability for insider trading. But what about those with more tenuous connections to the companies at issue? That’s the topic in Volume III of the series.
In Volume II of our new series, we look at temporary insiders — who they are and how they can become liable for insider trading.
We’re trying something new here at Cady Bar the Door. Below is the first volume of what I hope will be a long-running animation series on insider trading. The first episode describes and portrays the classical theory of insider trading, also known as the abstain-or-disclose theory. We may try series on other topics as well…. Continue Reading
The law surrounding short swing trading under Section 16(b) of the Exchange Act can be hard. But the basics are relatively easy. So easy, in fact, that cartoon characters can lay it out for you in three minutes and 19 seconds. Take it away, Sally and Mr. CEO:
This is almost certainly not true anymore. But it was true once! Maybe only once. Back in October 1991, the SEC sued Shared Medical Systems, a Pennsylvania health care information services company and three of its officers and directors: the company for financial reporting fraud and the individuals for insider trading, among other things. Here’s… Continue Reading
I haven’t yet turned to a life of crime, so far be it from me to criticize actual criminals’ profit-maximizing strategies. It’s easy for me to nitpick, but I’m not the one strapping on my mask and trying to earn a (dis)honest dollar every day. But have a look at this Reuters story from Tuesday…. Continue Reading
A couple of weeks ago I expressed skepticism about the ultimate impact of Judge Rakoff’s recent opinion in SEC v. Payton. In it, he held that for purposes of a motion to dismiss, the SEC had adequately alleged insider trading violations in a remote tippee context, even after the Second Circuit’s decision in United States… Continue Reading
It strikes me that two civil regulators are facing dire attacks on aspects of their enforcement programs – both in different U.S. Courts of Appeals – at the same time. Both of these attacks arise out of generalized statutes that only sort of address the problems the regulators seek to remedy. To some degree, how… Continue Reading
Insider trading prosecutions can be difficult. Because of the haphazard and tortuous growth of insider trading law itself, the prosecutions involve proving lots of different pesky elements. Fiduciary duties, materiality, trading . . . . Ugh, the trading. And the materiality! So annoying! If you were a prosecutor, how liberating it would be to bring… Continue Reading
As you probably know if you’re reading this, in December the Second Circuit upended insider trading law for “tipping” cases by (1) giving some structure to the definition of the personal benefit that must come to the original tipper, and (2) requiring that tippees farther down the chain know exactly what the original tipper’s personal… Continue Reading
In the wake of the Second Circuit’s huge remote tippee insider trading decision from two weeks ago in United States v. Newman, three more things occur to me. To recap, the court held that to be liable for insider trading in a tipper/tippee context, (1) a tippee must know about the personal benefit received by… Continue Reading
Matt Levine is a big jerk. He just sits there at Bloomberg following events in finance and securities enforcement, and then writes interesting things about those events really quickly and with insight that no one else has thought of yet. It’s so obnoxious. Today he struck again with this piece about the Second Circuit’s huge… Continue Reading
In the right kind of enforcement action, the SEC can take the money it’s generated and set up what’s called a Fair Fund to redistribute that money to harmed investors. But what is the right kind of case? This procedure was established as part of the 2002 Sarbanes-Oxley law, and it’s relatively easy to contemplate… Continue Reading
You remember Rengan Rajaratnam, right? He broke the S.D.N.Y.’s long streak of insider trading victories when a jury acquitted him in July. I wondered what the effect on his case with the SEC would be. Would he settle? Would he take that one to trial and win, too? Well, he and the SEC came to… Continue Reading
It never actually became a case, but maybe you remember this matter from a few years ago. In January 2011, former Berkshire Hathaway executive David Sokol bought about 100,000 shares in Lubrizol Corporation shortly before suggesting to Warren Buffett that Berkshire consider acquiring the company. Berkshire did acquire Lubrizol on March 14th, and the company’s… Continue Reading
One of the things you’re not supposed to do if you’re in the securities business – or any business, really – is buy and sell securities on the basis of material, nonpublic information in breach of a duty not to do so. The SEC doesn’t like it. Federal prosecutors don’t like it. Even state prosecutors… Continue Reading
You don’t see this every day. On Friday, the SEC filed a subpoena enforcement action seeking production of documents from the House Ways and Means Committee and documents and testimony from one of its staff members, Brian Sutter. This is fascinating to me for so many reasons, among them: (1) the potential Constitutional cluster we’re… Continue Reading
The internet blew up last week when rumors leaked that Apple was preparing to buy Dr. Dre’s and Jimmy Iovine’s Beats headphones company for $3.2 billion. Steve Jobs never would have done that! It’s confusing! It’s brilliant! Amid the noise, Farhad Manjoo had a suggestion: “If this is true, Tim Cook should get advice from… Continue Reading
One of the main questions I get from potential insider trading defendants is some variation of Well, what are we looking at here? That is, if the SEC is able to prove its case, what could the consequences be? Unfortunately, the answer is usually that it depends on a lot of things. To preserve some… Continue Reading
Recently I had a question that required me to review Don Langevoort’s comprehensive insider trading treatise. It got me thinking about the roots of insider trading law. Specifically, the pre-SEC, pre-10b-5 insider trading courts used to deal with. Back then, securities were frequently traded in face-to-face transactions, and not on exchanges, certainly not electronic ones. … Continue Reading
So let’s say you work for a hedge fund or some other financial institution that engages in proprietary trading , and you’re inclined to do some insider trading on your employer’s behalf. You make your trades, but you’re a company man and the profits go to the fund, not your own pocket. And let’s also… Continue Reading
As you may have heard by now, on January 27th a jury in the Northern District of Illinois sided with the defendants and against the SEC in an aggressive insider trading case. Here were the facts as alleged by the SEC and summarized by Gibson Dunn’s Joel Cohen in late 2010: Defendant Gary Griffiths worked… Continue Reading