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SEC Vs. In Re Cady Roberts & Co.

Decent Essays

You overhear a conversation in a restaurant about a yet-to-be-announced merger. You purchase securities of the target firm and reap a handsome profit in three weeks’ time. What does the law expect you to do?
There are two types of insider trading, legal and illegal. Corporate insiders (officers, directors or employees) buying and selling their own stock is designated legal insider trading. In contrast, illegal trading involves a party buying or selling securities based on a breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, nonpublic information about the security. Violations of insider trading can include the act of tipping (tipper), trading by those who have been tipped (tippee), and …show more content…

Without exception, insider trading relies on two elements: the existence of a relationship that gives access to corporate information, either directly or indirectly, not meant for the personal benefit of anyone, and unfairness involved in a person taking advantage of information knowing it is unavailable to those with whom he is dealing. In SEC v. Texas Gulf Sulphur Co., the Cady ruling was supported specifying that anyone with insider information is required to disclose the information or refrain from trading3. Consequently, the court held that anyone trading on insider information was committing fraud against all others in the market. The US Supreme court reversed the criminal conviction in the case of Chiarella v. United States, a printer in the possession of nonpublic information regarding a M & A documents that he was hired to print4. The SEC then instituted rule 14e-3 of the Exchange Act in which it became illegal for anyone to trade upon material nonpublic information … if they knew the information was from an

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