Quality Manager

Insider Trading
Research Paper
December 11, 2010

This paper will give a brief introduction to insider trading.   It will attempt to define the aspects of insider trading both legal and illegal.   The paper will give a synopsis of some of the laws that have been put in place to try and regulate insider trading.   It will touch base on the penalties for illegal insider trading and list an overview of some of the more pertinent cases on insider trading.

Table of Content

Introduction 4
Definition 4
Legal Trading 5
Illegal Trading 6
Common Law 6
Misappropriation Theory 7
SEC Regulations 8
Court Decisions 8
Severe Penalties           10

If you read the news, work in an office, or talk with friends, you have heard of Insider Trading. Insider Trading has been all over the news over the last several years.   First it was Enron and WorldCom. Then even the apparently squeaky clean Martha Stewart got pulled in with the ImClone insider trading scandal. So just what is Insider Trading? Despite all of the new coverage, you may still be unsure of what insider trading is and how it is punishable.  

Definition of Insider Trading
Insider trading occurs if you know material confidential information about a public company and you are involved in trading of the company‚Äôs stock or other securities. Also if the trading was prompted by individuals with potential access to non-public information about the company.   This trade was based on that information or a tip about the company before the information is released publicly. Material information is news that can affect a company's stock price, such as knowledge of a takeover or accounting problems, a dividend change, a new product, or earnings that are better or worse than expected.   This type of trading may be legal if it is done in the proper manner (Insider, 2001).   In the United...