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Insider Trading
INSIDER TRADING
PRE-READING QUESTIONS
1. What do you know about the people or organizations?
a. Charles Fogarty d. Texas Gulf Sulphur
b. Martha Stewart e. U.S. Security and Exchange Commission
c. ImClone
2. Do you want to own stock in any companies? Why or why not?
简爱英文版3. What kind of companies do you think are good investments? Can you name any companies that you
think have stock prices that will go up?
4. What kind of companies do you think are poor investments? Can you name any companies that you
would not invest in becau the stock prices will go down?
5. If you were a business owner, would you want to be publicly owned? In other words, would you want
stock in your company to be bought and sold? Or would you remain privately owned? Discuss the pros and cons to both types of companies.
Insider Trading - A Definition and Discussion
I nsider trading has a negative connotation even though it isn’t always done illegally. Insider trading occurs when
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corporate “insiders” trade the company’s stock or curities. An “insider” is someone who plays an important role in the corporation - certain employees, officers, directors, or stockholders who already hold a certain percentage of the
company’s shares. Most of the time, their trades are legal. When they trade in their own curities, they must report their trades to the U.S. Securities and Exchange Commission (SEC). However, when an insider trades bad on information that has not been made public and is obtained from the insider’s everyday role at the company, it becomes illegal. Insiders are prohibited by their fiduciary duties to buy or ll a curity bad on the insider information. It is also illegal for an insider to share this information with someone el; and “tipping” or acting on a tip is illegal.
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The SEC has brought veral insider trading cas. Tho cas are against insiders and others who traded after they gained knowledge of certain business developments that might affect the stock prices. The SEC has also brought cas against friends and relatives of the insiders who traded bad on receipt of the information from an insider; legal, banking, and printing company employees
who received information to perform rvices to the corporation who stocks they traded; government employees who gained information bad on their employers, or other people who misappropriated and profited from confidential information.
Insider trading is a rious offen becau it is not fair. People cannot believe in the integrity of investing and they start to worry that investing is not safe. Although many countries have laws forbidding insider trading, it is the United States, the United Kingdom, and Canada that have the strictest laws and punishments. The SEC has made enforcing insider trading a priority. Stiff criminal penalties or less strict civil penalties can be decided in the event that an insider trading ca is proved. It can be difficult to prove becau there often isn’t evidence such that is found in other criminal cas. While cas such as murder might have some sort of physical evidence that directly links the accud to the crime, most of the evidence in insider trading cas is circumstantial. Hence, civil insider trading cas can be easier to prove since they only require guilt be shown by most of the evidence and not beyond a reasonable doubt as in a criminal ca. Therefore, in the U.S., insider trading can be punished with monetary fines that must be paid, or by imprisonment that must be rved depending on the type of ca.
With many mergers taking place, the risk of insider trading increas. Several cas in the U.S. in th
e 1980s were important to the legal history of insider trading. In one ca, a printer was brought to trial accud of learning of
information that was not known to the public. He learned the information becau he had been hired to print materials for a company who was buying another company. He bought stock in the company that was buying the other. The ca went through veral decisions, reversals, and courts. Another ca in the late 1980s involved a writer for the Wall Street
Journal. His stories were considered influential and his column could affect the stock prices about his subjects. He was accud of tipping information and then sharing in the profits that others made from his tips. This ca too was appealed and later involved the Supreme Court who agreed that the writer engaged in fraud.
Since insider trading is not just a U.S. issue and companies are publicly traded in other countries around the world, more nations are involved in procuting cas. The U.S. has entered into veral treaties with countries such as Switzerland, Turkey, Canada, and Italy, among others. The treaties are called Mutual Legal Assistance Treaties and allow countries to help each other locate witness, obtain statements, and find business records. Perhaps if everyone works together, the world of investing will remain fair, safe, and keep its integrity intact.
VOCABULARY TASKS
A. What two types of evidence are there in an insider trading ca? Define each bad on the
information in the main reading.
1. _______________________________________________________________________________________
2. _______________________________________________________________________________________
B. Match the words in the left column with the best definition in the right column. If you don’t know the answer, read the main reading again and try to guess the answer from context.
____ 1. stock
a. to u in the wrong way ____ 2. curities
b. tho who work at a company ____ 3. employees
c. to put money into a company ____ 4. officers
d. tho owning stock in a company ____ 5. directors
e. tho holding positions of authority at a company ____ 6. stockholders
f. tho holding power to give direction to a company ____ 7. shares
g. stocks or bonds proving ownership in a company ____ 8. fiduciary
h. held in trust at a company ____ 9. misappropriate
i. a portion of a company ____ 10. invest j. equal portions of a company
C. Answer the questions bad on what you read in the main reading.
1. If you are punished monetarily, how are you punished? ___________________________________________________________________________________________________________________________________________________
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2. If you are imprisoned, how are you punished? __________________________________________________________________________________________________________________________________________________________
3. How do insiders get their name? __________________________________________________
___________________________________________________________________________________________________________________
4. If you receive a tip, what do you get? ________________________________________________________________________________________________________________________________________________
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READING JIGSAW - A
Reading A
Directions: Read the short article below, but do not show it to your partner. Your partner will ask you questions about your article.
暑假小结
Charles Fogarty
The history of insider trading extends for years. In 1963 and 1964, a man named Charles Fogarty purchad Texas Gulf Sulphur shares. Fogarty was an insider. He was an executive VP (vice president) of Texas Gulf and he had the inside knowledge that his company was about to become even more lucrative. He learned of some confidential information that could not be made public until after the company completed the legal rights
necessary. While the legalities were in process, Fogarty purchad over 3000 shares of Texas Gulf and made a lot of extra money. This transaction was considered unfair becau other people did not have the same privy information. Did Fogarty win while other traders who didn’t have the information lo? The ca did
eventually go to court in 1966 and the ca was the SEC vs. Texas Gulf Sulphur Company. Did Fog
arty have an unfair advantage since he had prior knowledge? In this ca, the federal court said that a person who obtains information has two choices. That person can disclo the information or that person can refrain from handling any trading transactions. Since that time, many cas have traveled through the American court system and the laws have evolved. Other cas include the U.S. vs. Carpenter and the U.S. vs. O’Hagan.
Reading B - Work with your partner. Ask the questions below about your partner’s reading.
1. Who was the alleged inside trader?____________________________________________________________________________________________________________________________________________________
2. What did she do?__________________________________________________________________________________________________________________________________________________________________
3. Where did she work?_______________________________________________________________________________________________________________________________________________________________
4. When did she receive a tip? _________________________________________________________________________________________________________________________________________________________
5. Why did she ll her stock?__________________________________________________________________________________________________________________________________________________________电饭
