Law.com Subscribers SAVE 30%

Call 855-808-4530 or email [email protected] to receive your discount on a new subscription.

Insider Trading: It's Not Just for Suits

By Joel M. Cohen and Mary Kay Dunning

On Sept. 30, 2010, the SEC brought an insider trading case against two railroad employees and their relatives, alleging that the defendants reaped more than $1 million in illegal gains by trading on nonpublic information about the planned takeover of the railroad company. SEC v. Steffes, No. 01 Civ. 06266 (N.D. Ill. Sept. 30, 2010). The SEC alleges that the employees traded and tipped on observations made on the job, including seeing people in suits tour the rail yards, hearing coworkers discuss the possible sale of their company, and being asked to prepare asset valuations. Critics complain this is an unfair case of Goliath versus David, where the SEC is going after low-level employees who turned a hunch about the sale of their company into a profit.

The Steffes complaint reminds us that the prohibition on insider trading applies to everyone, not just to hedge-fund managers and financiers. The securities laws forbid any transacting party ' rich or poor, sophisticated or unsophisticated ' with an illegal informational advantage over an unknowing counterparty from making a profit by exploiting that counterparty's ignorance. The rub is the word “illegal,” as trading on nonpublic information does not necessarily violate the law. This informational advantage often arises where an employee (at any level) learns something through his employment that he is duty-bound to protect. Setting aside the highly fact-specific question of whether information is material ' which the SEC will have to prove in the Steffes case ' the baseline of any insider trading inquiry is whether one who trades on or is tipped about alleged material nonpublic information owes a fiduciary duty to the source of the information to keep it confidential.

This premium content is locked for Entertainment Law & Finance subscribers only

  • Stay current on the latest information, rulings, regulations, and trends
  • Includes practical, must-have information on copyrights, royalties, AI, and more
  • Tap into expert guidance from top entertainment lawyers and experts

For enterprise-wide or corporate acess, please contact Customer Service at [email protected] or 877-256-2473

Read These Next
Bankruptcy Sales: Finding a Diamond In the Rough Image

There is no efficient market for the sale of bankruptcy assets. Inefficient markets yield a transactional drag, potentially dampening the ability of debtors and trustees to maximize value for creditors. This article identifies ways in which investors may more easily discover bankruptcy asset sales.

Judge Rules Shaquille O'Neal Will Face Securities Lawsuit for Promotion, Sale of NFTs Image

A federal district court in Miami, FL, has ruled that former National Basketball Association star Shaquille O'Neal will have to face a lawsuit over his promotion of unregistered securities in the form of cryptocurrency tokens and that he was a "seller" of these unregistered securities.

Why So Many Great Lawyers Stink at Business Development and What Law Firms Are Doing About It Image

Why is it that those who are best skilled at advocating for others are ill-equipped at advocating for their own skills and what to do about it?

Blockchain Domains: New Developments for Brand Owners Image

Blockchain domain names offer decentralized alternatives to traditional DNS-based domain names, promising enhanced security, privacy and censorship resistance. However, these benefits come with significant challenges, particularly for brand owners seeking to protect their trademarks in these new digital spaces.

Coverage Issues Stemming from Dry Cleaner Contamination Suits Image

In recent years, there has been a growing number of dry cleaners claiming to be "organic," "green," or "eco-friendly." While that may be true with respect to some, many dry cleaners continue to use a cleaning method involving the use of a solvent called perchloroethylene, commonly known as perc. And, there seems to be an increasing number of lawsuits stemming from environmental problems associated with historic dry cleaning operations utilizing this chemical.