Insider Trading - Seeger Weiss Law Firm

Insider trading refers to trading of stocks or other securities by individuals with non-public information about the company–more specifically, trading by an individual based on non-public information knowing there is a violation of corporate trust to shareholders. A relationship has to exist between the person disclosing the insider information and the person acting on it. For example, a random person who overhears and acts on insider information passed between two company executives at a table nearby in a restaurant is not liable unless they had some sort of connection with the corporate executives. Conversely, the United States Supreme Court upheld in 1986 in United States v. Carpenter the mail and wire fraud convictions for a defendant who received insider information from a journalist (also convicted) who inappropriately used insider information belonging to his employer the Wall Street Journal. The defendant and journalist both knowingly acted on insider information held confidential by the newspaper and used it for their own personal benefit. The court ruled that any person who acquires special knowledge or information by virtue of a confidential or fiduciary relationship with another is not free to exploit it for personal benefit and must account for derived profits.

Insider trading originally referred to purchases and sales of securities by company officers, directors, and beneficial owners with more than ten percent of a class of securities while they possessed non-public information. In application today, an “insider” may be someone outside the company. A key issue is the fiduciary responsibility company insiders have to put shareholder interests first before their own in company matters. Company owned information is considered by the courts as “property” and is protected for its exclusive use. Buying or selling securities based on company owned information is a violation of shareholder trust and is likened to fraud akin to “embezzlement”.

The definition of insider trading has an early origin and long evolution in the courts. Also through the years, legislation has refined and clarified insider trading.

• In 1909, the United States Supreme Court ruled that a corporate director committed fraud when he bought company stock that was about to go up in price without disclosing his information.
• In 1966, a federal circuit court ruled in SEC v. Texas Gulf Sulphur Co. that anyone in possession of insider information must disclose the information or refrain from trading.
• In 1984, the United States Supreme Court ruled in Dirks v. SEC that receivers of insider information are liable if confidential information was passed to them by someone who benefited from disclosing insider information that had a fiduciary responsibility to uphold not to disclose. Also, the case defined the concept of “constructive insiders” who are those authorized to receive confidential information while providing services for a corporation. Constructive insiders acquire fiduciary responsibilities as a true insider.
• The Insider Trading Sanctions Act of 1984 and Insider Trading and Securities Fraud Enforcement Act of 1988 set forth penalties for insider trading as high as three times the profit gained or loss from the activity.
• In 1997, in United States v. O’Hagen, a partner in a law firm representing a company that was considering an offer to buy another company (Pillsbury Co.) committed fraud by purchasing that company’s stock options. The attorney claimed he had no fiduciary responsibility to the other company, but the courts ruled that he misappropriated confidential insider information in breach of a duty owed to the source of that information.
• Since December 2005, companies are required to announce to employees when they can safely trade securities without threat of violating insider information.

If you are a victim of securities fraud including issues related to insider trading, the attorneys at Seeger Weiss LLP would like to assist you to receive compensation for your victimization. Seeger Weiss's lawyers are concerned about the victims of insider trading and want to assist them in remedying their losses. Aside from insider trading, the law firm of Seeger Weiss handles cases involving drugs and toxic injury, personal injury, asbestos and mesothelioma, class actions, securities fraud, and commercial litigation. Seeger Weiss has offices in New York, New Jersey, and Philadelphia. Seeger Weiss is a nationally recognized preeminent law firm focused on the representation of plaintiffs. Please contact Seeger Weiss LLP for a free case evaluation if you are in need of legal assistance including cases involving insider trading.