Insider Trading By Chad Polevoy

What is Insider Trading? Insider trading is when somebody within a company uses information not available to the public to make profit or avoid loss There have been many high profile cases of this in the past decade: – Martha Stuart – Ivan Boesky – Michael Milken

What Happened to Them? Martha Stuart: – 5 months prison sentence – 30,000$ fine Ivan Boesky – 3.5 year prison sentence – 100 Million $ fine Michael Milken – 1.1 Billion $ in total fines and retribution

How do you prevent it? Serious implications, and serious money can be lost in insider trading scandals It is a serious problem, and there are laws set out to prevent it. Also, the book makes a great point in saying “Every PR professional should know the laws the govern his or her organization and industry”

The Laws! Securities Exchange Act of 1934: – Regulates the secondary trading of securities that were originally traded on the primary market – The law is very important to the actual place of trading, like the NYSE or other exchanges country wide – This law attempts to protect the public from abuses in the issuing and sale of securities

The Laws! The Insider Trading Sanctions Act of 1984 – This lays out the penalties for insider trading – It states that fines may be as high as three times the profits made from the act itself In 1984, in the case of Dirks v. SEC, it was determined that even the person receiving the tips is liable In that case though, since Dirks has given out the information to expose fraud, he was safe, because there was no personal gain.

How to Avoid Trouble Since all investors have the opportunity to gain inside information, avoiding trouble can be hard If ever receiving information that seems to be private information, it is important not to act on it, The penalties are so high that it is very risky A good PR counselor must be sure to research information before to be sure to only use information that is available to the public

How The Laws Came to Be In the early 1900’s, there were no regulations against insider trading, or the sale of securities The first laws put into effect were in 1933 and 1934 The biggest fear of the Sec was the fact that any investor has the opportunity to gain the information before the public – The SEC put rule 10b-5 into effect to prohibit the insider trading of information that is not available to the public