Trading Securities: Insider Trading & Short-Swing Profits

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來自 University of Illinois at Urbana-Champaign 的課程

Corporate & Commercial Law II: Business Forms, Financing & Governmental Regulation

15 個評分

University of Illinois at Urbana-Champaign

Corporate & Commercial Law II: Business Forms, Financing & Governmental Regulation

15 個評分

This course is the second course in a two-part series on corporate and commercial law. In this part, we focus on three main topics: business organizations, business financing, and governmental regulation. In the first module, we discuss the characteristics of a number of the most common forms of business entities, such as corporations and LLCs. Module two is devoted to debtor-creditor relationships, including bank financing, debt financing, secured transactions, and bankruptcy. We wrap up the course with two modules that focus on the most important aspects of governmental regulation, including the process by which administrative agencies make rules, and the regulation of anti-competitive behavior and securities transactions.

從本節課中

Module 4: Regulation Part II: Antitrust and Securities

In this module, we continue our discussion of administrative regulations from the previous module, focusing specifically on antitrust and securities regulation. Prohibiting anticompetitive behavior and ensuring fair securities transactions are two of the most important ways the government regulates commerce. By the end of this module, you will understand the basics of federal antitrust and securities laws.

Trading Securities: Insider Trading & Short-Swing Profits4:23

與講師見面

Professor Michael R Fricke
Teaching Assistant Professor
Department of Business Administration

In this lesson, we wrap up our discussion of securities laws

by discussing insider trading in short-swing profits.

Alright. In our final lesson on securities laws,

we're going to talk about insider trading,

something you've probably heard about,

and short-swing profits, something you probably haven't.

So let's start with insider trading.

What is insider trading?

Basically, it's whenever non-public information

leads to someone to profit on a stock transaction.

An insider trading is a crime.

So in order to really delve into this thing called insider trading,

we need to first understand who is an insider,

who counts as an insider for insider trading.

Well, under the securities laws,

all directors and officers of a corporation are insiders,

so are any outside advisers who do business with the companies,

like accountants, outside accountants,

outside consultants, outside investment bankers, people like that.

And basically, anyone who owes any fiduciary duties to the company are insiders.

They are prohibited from profiting on stock transactions based on non-public information.

But in addition to these insiders,

there are also others who are prohibited from engaging in

insider trading and this is something called the misappropriation theory.

You don't need to know the definition of misappropriation theory,

but what you do need to know is that anyone who wrongfully

acquires and profits from non-public information,

has committed insider trading.

Even if you're not an insider,

you could be a random jewel on the street,

you have no connection with the company.

But if you somehow wrongfully acquire non-public information and you profit as a result,

then you are guilty of insider trading.

Here's an example. You may have heard

the story of Martha Stewart's being accused of insider trading.

Here's what happened in that case.

There's this guy named Sam Waksal.

He was the CEO of a company called ImClone.

Now ImClone got some bad news.

They were developing a drug.

They got news that the FDA was not going to approve their drug.

So Sam Waksal called his stockbroker and said,

"Please stale a bunch of stock before this news becomes

public and our stock price drops off a cliff."

It just so happened that Sam Waksal's stockbroker was also Martha Stewart's stock broker.

And the allegation that was actually not proven,

the allegation was that

the stockbroker called up his other client Martha Stewart and said,

"Hey, you might want to sell your ImClone stock?"

And Martha Stewart sold some ImClone stock shortly before

the news of this FDA disapproval hit the public.

Now actually, Martha Stewart was not convicted of insider trading.

But if this was the way that things went down,

Martha Stewart would have been guilty of

insider trading even though she wasn't in Imclone insider,

but she wrongfully acquired

this non-public information from the stockbroker who acquired it from ImClone CEO.

Now the next topic in this lesson is short swing profits.

This is not commonly known,

you may never have heard of short-swing profits.

This is when someone called

a statutory insider profits on the sale of stock of their own company.

Now a statutory insider is not the same as

an insider for purposes of insider trading but it's pretty close.

So a statutory insider is a director or an executive officer,

that's makes sense or anyone who holds at least 10 percent of the stock of a company.

Those are what's called statutory insiders and they're prohibited from profiting

on the purchase and sale of

their own company's stock if that purchase and sale happens within a six month period.

So basically, if you purchased stock in your own company,

you have to wait at least six months before you sell it.

That's the rule on short-swing profits.

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