4/15/2020
Copyright© 2010 WeComply, Inc. All rights reserved.

4/15/2020
Copyright© 2010 WeComply, Inc. All rights reserved.

Laws prohibiting insider trading —
• Maintain a level playing field
• Promote faith in integrity and fairness of stock market
• Encourage investment
Trading based on material, nonpublic information is illegal
• Applies to directors, officers and employees
• Prohibits buying/selling securities based on material, nonpublic information
• Prohibits tipping others to buy/sell based on that information
• Includes non-employees who trade on nonpublic information from others
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3

(Cont’d)
Laws prohibiting insider trading —
• Maintain a level playing field
• Promote faith in integrity and fairness of stock market
• Encourage investment
Trading based on material, nonpublic information is illegal
• Applies to directors, officers and employees
• Prohibits buying/selling securities based on material, nonpublic information
• Prohibits tipping others to buy/sell based on that information
• Includes non-employees who trade on nonpublic information from others
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Information is considered material if —
• there is a substantial likelihood that a reasonable investor would consider it important in making an investment decision, and
• it would significantly alter the "total mix" of information made available about the company
Material information includes —
• Earnings information
• Mergers, acquisitions or joint ventures
• Developments regarding customers or suppliers
• Changes in control or a change of auditors
• Events regarding company stock
• Bankruptcies or receiverships
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6

An investor obtains "inside" information that XYZ Inc. is planning to send cheesecakes to its clients as a holiday gift. The investor considers this very significant, because XYZ has only sent calendars in past years. The investor proceeds to load up on XYZ stock. Is there an insider-trading issue here?
A.No, since a reasonable investor would probably not consider this information significant.
B.Maybe, if there's a material difference in cost between sending calendars and cheesecakes.
C.Yes, because the information was very significant to the investor.
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Nonpublic information has not been released to investing public
Determining factors:
• How information was disseminated
• How much press coverage company receives
• How much analysts monitor and report on company
Market is allowed reasonable time to absorb information after publication
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Insider-trading laws cover wide range of individuals and activities
Directors, Officers and Employees
• Job title isn't determinative
• Issue is whether individual misused material, nonpublic information — regardless of how information was discovered
• Controlling person may also be liable for failing to prevent insider trading by someone under his/her supervision
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9

(cont’d)
Insider-trading laws cover wide range of individuals and activities
Directors, Officers and Employees
• Job title isn't determinative
• Issue is whether individual misused material, nonpublic information — regardless of how information was discovered
• Controlling person may also be liable for failing to prevent insider trading by someone under his/her supervision
Copyright© 2010 WeComply, Inc. All rights reserved.
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(cont’d)
Family Members, Friends and Business Associates
• Employee with access to material, nonpublic information is "tipper"
• Person who receives and acts on inside information is
"tippee"
• Both tipper and tippee may be liable for insider trading
• Tippee may also be liable as tipper as to others
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(cont’d)
Individuals Indirectly Involved with the Company
• Temporary insiders
• Includes lawyers, accountants, consultants, employees of other companies
Both temporary insider and tippee can be liable
Anyone who helps someone else engage in insider trading can be criminally prosecuted
Copyright© 2010 WeComply, Inc. All rights reserved.
13

(cont’d)
Individuals Indirectly Involved with the Company
• Temporary insiders
• Includes lawyers, accountants, consultants, employees of other companies
Both temporary insider and tippee can be liable
Anyone who helps someone else engage in insider trading can be criminally prosecuted
Copyright© 2010 WeComply, Inc. All rights reserved.
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Penalties for insider trading are severe
• Fines up to three times amount gained or loss avoided
• Imprisonment for up to 20 years and fines up to $5
million for willful violation
• Violations by high-level employees can lead to fines of up to $25 million and civil lawsuits
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Regulation FD addresses selective disclosure — disclosure of material, nonpublic information to stock analysts and/or large investors before disclosing information to the public
• Similar to "tipping"
• Causes ordinary investors to lose confidence in fairness of the stock markets
Regulation FD requires public companies that disclose material, nonpublic information to securities market professionals and shareholders to disclose that information publicly at the same time
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4/15/2020
Copyright© 2010 WeComply, Inc. All rights reserved.

Copyright© 2010 WeComply, Inc. All rights reserved.
4/15/2020

This course and the related materials were developed by
WeComply, Inc. and the Association of Corporate Counsel.
4/15/2020
Copyright© 2010 WeComply, Inc. All rights reserved.