Examination Essay Example | Topics and Well Written Essays - 500 words

Examination - Essay Example The issue to be settled is whether or not Joan, Jake, and Johnny are guilty of violating the Securities law prohibiting insider trading – Johnny in his capacity as officer of the firm, and Joan and Jake who acted on tips from Johnny. Sec 16 (b) of the Securities Exchange Act of 1934 directly addresses insider trading, while Sec 10(b) indirectly does so. Insiders refer to the officers, corporate directors, or beneficial owners of more than 10% of a firm’s shares.1 The case law is SEC v Texas Gulf Sulphur Co. (1966) which ruled that anyone in possession of inside information must either disclose the information or refrain from trading. Dirks v SEC (1984) ruled that tippees (receivers of second-hand, non-public material information) are liable if the tipper was in breach of fiduciary duty, and he/she and the tippee personally benefitted from the disclosure. Illegal insider trading â€Å"involves the theft of valuable information about corporate plans that properly belongs to the corporation and its investors.† 2 Its vigorous prohibition is necessary to protect the intellectual property rights that rightfully belong to the corporation and its shareholders.3 Illegal trading is done when the purchase or sale of securities is conducted in breach of fiduciary relationship on the basis of non-public, material information, in such a way that the price of the security is affected. It is also illegal for the person enjoying such relationship of trust and confidence to tip such material, non-public information for them to trade on such basis. Aside from appropriating the information in violation of property rights, insider trading also reduces the incentives of legitimate market participants to make discoveries of information, by unjustly appropriating trading profits on undisclosed information. It robs investors of many benefits of