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Summary
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 Covers
insider trading liability
- Under Rule 10b-5, including SEC enforcement actions
- Under state law
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SEC Commentary
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SEC
staff Congressional testimony
SEC
staff speeches
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Statute - Rules
 Exchange
Act § 10 |
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Exchange
Act § 20A Liability to contemporaneous traders |
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Rule 10b-5
General anti-fraud provision |
Rule 10b5-1
Insider trading
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Trading "on the Basis of" Material Nonpublic Information in Insider
Trading Cases
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Rule
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Adopted to resolve an issue over reach of Rule 10b-5
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Provides that a person trades on the basis of material nonpublic information
if a trader is aware of the material nonpublic information when
making the purchase or sale
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Rule also sets forth several affirmative defenses or exceptions to liability
- Permits persons to trade in certain specified
circumstances where it is clear that the information they are aware of is not a
factor in the decision to trade
- Such as pursuant to a pre-existing plan,
contract, or instruction that was made in good faith
See
Rule 10b5-1 Trading Plans
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Rule 10b5-2
Insider trading
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Duties of Trust or Confidence in Misappropriation Insider Trading Cases
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Rule
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Adopted to resolve an issue over reach of Rule 10b-5
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Clarifies how the
misappropriation theory applies to certain non-business relationships
- Provides
that a person receiving confidential information under circumstances specified
in the rule would owe a duty of trust or confidence and thus could be liable
under the misappropriation theory
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Enforcement Actions
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2008
Dow
Jones board member
- SEC reaches $24 million settlement with a former
Dow Jones board member and three other Hong Kong residents accused of illegal
tipping and insider trading ahead of news of an unsolicited buyout offer from
News Corporation
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SEC press release
2.05.08
PWC
employees
- SEC charges two former San Francisco-area
employees of PricewaterhouseCoopers with insider trading
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SEC press release
1.15.08
2007
DHB
Industries CEO - David H. Brooks
- SEC charges former CEO of military body armor supplier with financial fraud and insider trading
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SEC press release 10.25.07
Taher
Suterwalla Petco buyout
- SEC charges British trader with making over $3 million in illicit profits through insider trading in
Petco
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SEC press release 8.03.07
Shane
Bashir Suman and Monie Rahman
- Former MDS Inc. IT specialist and spouse made more than $1 million from stolen information about
MDS's impending merger with Molecular Devices
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SEC press release 7.24.07
Barclays
- Barclays Bank pays $10.9 million to settle charges of insider trading on bankruptcy creditor committee information
- Barclays' former head trader of distressed debt also pays
$750,000
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SEC press release 5.30.07
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Complaint
Oracle
employees Husband - Wife
Jennifer
Wang - Ruben Chen Husband - Wife
TXU
call options SEC_CODE_REF_0090001192884
- SEC had previously obtained emergency asset freeze against unknown purchasers of
TXU call options
Able
Laboratories
- Parallel DOJ and SEC proceedings against pharma
quality control officer and other chemists
- Traded while knowing about faulty quality control
practices
Wall
Street insider trading ring
- Largest insider trading case in 20 years
- Insider trading scheme netted millions in illegal
insider trading profits on thousands of trades, using information stolen from
UBS and Morgan Stanley
Rosenthal
family
2006
Martha
Stewart - Peter Bacanovic
Justin
Huscher Madison Dearborn
- Traded on inside information learned from a
friend who was involved in an investor consortium that acquired Unisource
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Litigation release 6.22.06
International
insider trading ring
Victor
Menezes Citgroup
- Settled
enforcement action over exercise of options
- Alleged that Citigroup Senior Vice Chairman knew of
large losses related to the
company's Argentine operations
- Executive paid $2.6 million in disgorgement and
penalties
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Litigation release 1.31.06
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Complaint
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SEC Bounty Program
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Authorized
by Exchange Act § 21A(e)
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Notable State Law
Cases
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Zimmerman v Braddock Del Ch 2005
- Plaintiffs granted motion to amend complaint
In re Fuqua Industries Del Ch 2004 12.14.04
- Plaintiffs granted motion to amend complaint
- To allege breach of fiduciary duty based on a claim that a director obtained an inflated premium on the sale of his shares
- Director allegedly agreed to promote another
company's interests as a quid pro quo
In re Oracle Del 2005 11.24.04
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Supreme Court decision
- Chancery Court decision
- Affirms Chancery Court decision
- Which dismissed Brophy claim for insider trading
- No evidence that when defendant
officers sold their shares,
they possessed material, non-public information about
Oracle's being unable to meet its publicly disclosed projections
Diamond
v Oreamuno 24 NY 2d 494, 248
NE 2d 910,
301 NYS 2d 78 Polin
v Conductron 552 F 2d 797
cert
denied 434 US 857 Oberly v Kirby 592 A 2d 445 Frantz Manufacturing
v EAC Industries 501 A 2d 401
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Related Topics
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