Manual The Stockbroker: Insider Information

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Say for example a P. A that has a relationship with a stock broker may likely inform the stock broker of the happenings in the company. The P. Every information that comes from a CEO is usually weighed by investors. In some cases, some CEO mistakenly devours some information on the performance of their company during annual or staff meetings. Sometimes when a company decides to downsize and lay off some of its employees, the employees might take it that the company is running at a loss and such information might influence the price of the companies stocks if leaked in the stock market.

There is certain business information that is supposed to be kept secret from family members. There are cases where due to emotions, some board members might decide to inform their spouse or any of their family members about the concern of their company and such information might easily get leaked in the stock market via a broker that is privy to such information.

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Normally after board meetings where vital issues about the future of a company is discussed, there is the probability of the discussion to continue in the car if two of the board members are been driven in a car by a driver. If such driver gets such vital information, who knows he might pass it across to a stock broker and the information can easily be leaked in the stock market. Journalist-: Journalists have a way of getting information and they can go all the way to get information about a company which they have interest in.

Some of them go as far as selling the information they got to willing buyers in the stock market. Although this is illegal and a criminal offense, but some stock brokers still benefit for it.

Insider trading

If the lay their hands on such information, they may decide to leak such information to a stock broker who in turn may leak it in the stock market especially when they know it will benefit them. No doubt, in the world of business people can go all the way in the bid to make money. The standards are high for proving such cases. In , two hedge fund managers, Anthony Chiasson, cofounder of defunct Level Global, and Todd Newman, a manager at Diamondback, had their insider trading convictions overturned.

Prosecutors also need to prove that the person making the trades knew the tip came from illegally obtained information. Representatives for Mickelson did not respond to request for comment. Gorman said naming him a relief defendant was simply to get the trading profits back.

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Sometimes, the information falls into your lap, literally. In , the SEC charged a licensed therapist with insider trading. The complaint said he disclosed nonpublic information about a forthcoming merger of two public companies revealed to him by his patient during a therapy session. Licensed therapists are typically bound by state laws and codes of ethics to keep information shared by patients confidential. One insider-trading scheme involved the passing of tips via napkins or Post-it notes at Grand Central Terminal in New York.

A law clerk at a major law firm, Simpson Thacher, had access to confidential mergers and acquisitions data, the SEC alleged. Stephen Metro allegedly passed the tips to his friend, Frank Tamayo, who then passed it to a broker, Vladimir Eydelman, who had worked in the past at Oppenheimer and Morgan Stanley.

High-Profile Cases

Metro would tell Tamayo about the deals in coffee shops and bars, and Tamayo would then show Eydelman a Post-it note or a napkin on which he wrote the ticker symbol of companies to be acquired. Then Tamayo would destroy the evidence by chewing it up, sometimes actually eating the Post-it note or napkin.

Eydelman was sentenced to three years in prison in In March , former Equifax technology executive Jun Ying was charged by federal authorities with securities fraud. His attorneys did not respond to a request for comment. Raj Rajaratnam, founder of hedge-fund Galleon Group, either was very lucky or, as SEC lawyers suspected, an unbelievable fortune-teller.

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Like Walters, the SEC noticed Rajaratnam made several large trades just before a series of major corporate events. In , he took large stock options in Hilton Hotels immediately before it was taken over by the Blackstone Group. The government eventually collected enough evidence of his winning trades to get permission to eavesdrop on his phone calls.

The SEC charged several other portfolio managers and directors at numerous companies with insider trading related to this case. Neither of their attorneys responded to a request for comment.

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  5. Eight employees of the now-defunct hedge fund firm SAC Capital Advisors were convicted on criminal charges related to insider trading in It was front page news again in , when hedge fund manager Raj Rajaratnam was sentenced to a record 11 years in prison for trading stocks based on the receipt of confidential information. Despite all of the coverage, many investors were still unsure about what insider trading was, how it worked, why it was such a big deal, and how it is punished. With as many news stories, front page articles, and documentaries as there are surrounding the subject, you would think that people would understand that insider trading is illegal.

    Yet, from time to time, scandals erupt that cause it to re-enter the public consciousness in a big way. However, when they're caught which always happens eventually , they are going to have to live with the consequences.

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    In short, insider trading happens when someone makes a trade of stock based on information that is not available to the general public. To be accused of insider trading, you must usually be someone who has a fiduciary duty to another person, institution, corporation, partnership, firm, or entity. You can get in trouble of you make an investment decision based upon information related to that fiduciary duty that is not available to everyone else. Insider trading can also arise in cases where no fiduciary duty is present but another crime has been committed, such as corporate espionage.

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