Author Question: Explain what insider trading is, as well as the difference between and insider and a statutory ... (Read 52 times)

frankwu · **on:** Aug 3, 2018

Explain what insider trading is, as well as the difference between and insider and a statutory insider.

What will be an ideal response?

Question 2

What is the name of the U.S. Supreme Court case decided in 2000 that held that recount procedures in an election must be standard from district to district or the procedures violate the Equal Protection Clause?

a. Mapp v. Ohio
b. Bush v. Gore
c. Miranda v. Arizona
d. Baker v. Carr

juiceman1987 · **Reply #1 on:** Aug 3, 2018

Answer to Question 1

The Securities Exchange Act of 1934 was enacted to prevent fraud in the subsequent trading of securities, including insider trading. Insider trading occurs when a company employee or company advisor uses material nonpublic information to make a profit by trading in the securities of the company. This practice is considered illegal because it allows insiders to take advantage of the investing public. The SEC has declared that the duty of an insider who possesses material nonpublic information is to either (1) abstain from insider trading in the securities of the company or (2) disclose the information to the person on the other side of the transaction before the insider purchases the securities from or sells the securities to him or her. For purposes of Section 10(b) of the 1934 Act, and SEC Rule 10b-5, insiders are defined as (1) officers, directors, and employees at all levels of the company, (2) lawyers, accountants, consultants, and other agents and representatives who are hired by the company on a temporary and nonemployee status to provide services or work to the company, and (3) others who owe a fiduciary duty to the company. A person who discloses material nonpublic information to another person is called the tipper. The person who receives such information is known as the tippee. Both parties are liable for acting on material information that they knew or should have known was not public. Criminal liability can also attach to insider trading. A statutory insider is a label that is important because of a different part of the 1934 act, Section 16, which prohibits short-swing profits, trades involving equity securities occurring within six months of each other. A statutory insider is defined in Section 16(a) as any person who is an executive officer, a director, or a 10 percent shareholder of an equity security of a reporting company as a statutory insider for Section 16 purposes.

Answer to Question 2

b