Insider Trading
Use of inside information when trading securities of own corporation, in violation of fiduciary duty to shareholders & investors To cure: Insider must disclose Inside Info to Public (or don't trade!)
Insider: One with a fiduciary duty, who has knowledge of facts not available to the general public
FIDUCIARY DUTY: Duty of loyalty & confidentiality which arises when one reposes trust & confidence in another
Tipper TIP
Tippee
Directors, Officers and Employees who have access to confidential corporate info
Market Analyst & Others may inherit tipper's fiduciary duty --------------------------------
Duty to Corporation Duty to Shareholders & Investors
Dirks Test: Securities Violation Where:
Generally, NO DUTY 1) The tip is a breach of the tipper's fiduciary duty 2) The tippee knows (or should know) that the tip violates this duty; and 3) The tipper derives a personal gain from giving tip [2000 - Regulation FD requires tipper to disclose, else violation by tipper]
Shareholders do NOT hold a fiduciary duty, UNLESS they are Majority Shareholders
Misappropriation Theory
violation of a fiduciary duty to the source of the inside information by Temporary Insiders who use info without disclosing use to the source NO DUTY -----------------------* Attorneys * Accountants * Consultants * & Others
It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange, a) To employ any device, scheme or artifice to defraud. b) To make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the purchase or sale of any security.