Insider Trading

Insider Trading

Insider trading is the use of information not made public to carry out trade decisions providing traders with an unfair advantage over others. Insider trading violations involve sharing confidential, non-public information about securities, trading of security by the person given the knowledge, and the selling of securities by those who misappropriate such information.

A recent case of insider trading involves Wells Fargo, a multinational financial services company. A research analyst tipped a trader at the firm who traded on the information provided instead of waiting for published research. This action went against the company policies of trading on security ahead of published research. He sold profitably from these reports that in a manner that did not fit his typical pattern of trading. This violation led to insider trading as it went against Section 10b of the Securities Exchange Act that allows traders to set a trading pattern to sell their stock. (Wang, 2010)

Furthermore, the two employees willingly exploited Section 17(a) of the Securities Act of 1933. This gives the Securities and Exchange Commission powers to decide information issuers have to provide. They had access to the information on compensation to the executive, audited financial statements, and terms of securities offered to investors and decided to trade on the news. Their breach of the company policy leads to their trade being as illegal insider trading as they deceptively profited using the issuer’s information. (Agrawal, 2015)

Conclusively, the Wells Fargo employees willfully participated in violation of the Securities act leading to illegal insider trading. It is supported by the fact that they breached Section 10b and Section 17(a) of the Securities act.

References

Agrawal, A., & Cooper, T. (2015). Insider trading before accounting scandals. Journal of Corporate Finance, 34, 169-190.

Wang, W. K. (2010). Insider trading. Oxford Press.