Insider Trading and Business Law

A free market requires equal and easy access to information. A free market holds that participants in a given market will seek to maximize their own benefit in that market. So long as all participants have access to the same information at the same time, it is assumed that the market will be efficient and move toward price equilibrium. The stock markets are generally held to be among the best examples of free markets in existence, and so the information available to those in the market becomes of great importance.

The problem of insider trading arises when participants in the market have access to information that is otherwise not generally available, and which would affect the price of the security in question were the information generally available. So long as the participant does not act on that information, or cause other people to act on that informatio

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is not enough to impose liability on a controlling person. In the case of registered brokers and investment advisers, the SEC must prove that the controlling person failed to establish or enforce a procedure that would prevent the occurrence. In other cases, the standard is that the controlling person knew or disregarded the fact that the controlled person was likely to engage in the violation. In assessing penalties, courts may award the greater of $1,000,000 or three times the profit gained or loss avoided as a result of the illegal transaction (Gillis and Ciotti, 1992, p. 49). Congress took additional steps when it passed the Securities Enforcement Remedies and Penny Stock Reform Act of 1990. This act amends both the Securities Act of 1933, the Securities Exchange Acts, the Investment Company Act and the Advisers Act (both of 1940). The Remedies Act gave the SEC additional solutions it can pursue from persons and entities that have violated the provisions of the acts and the rules and regulations associated with them. These additional remedies include civil penalties in administrative proceedings, monetary penalties in civil proceedings, and cease and desist orders. (Gillis and Ciotti, 1992, p. 50). The SEC can assess
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Approximate Word count = 3915
Approximate Pages = 16 (250 words per page)

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