THE INSIDER TRADER'S GLOBAL GUIDE
The United States is no longer a cosy place for insider dealers -- those who trade illegally in stock on the basis of non-public information. The $12.6 million case brought by the Securities and Exchange Commission (SEC) against Dennis Levine has made that clear. But more worrying for the prospective US insider is the ambiguity of the law.
Prohibition against insider trading takes two forms: the disclose-or-abstain rule; and the misappropriation theory. The former is narrower and was considered with judicial approval by the Supreme Court in 1980. But since then the lower courts have been applying the misappropriation theory, which was at the heart of the decision in May not to reverse the conviction of R Foster Winans, the Wall Street Journal reporter found guilty of passing on inside information from the paper's tipster column.
Breach of the disclose-or-abstain rule, when combined with a fiduciary duty to disclose, constitutes insider trading. It arises from Rule 10b-5 under the Securities Exchange Act of 1934. That requires insiders -- directors and officers of a company with equity securities registered under the Act, and beneficial owners of 10% or more of the company's shares -- to disclose material non-public information or forego the transaction.