Document Type

Article

Publication Date

2019

Keywords

insider trading, corporate insiders, breach of fiduciary duty, business law

Abstract

Purpose

This paper analyzes trading and tipping activities in insider trading litigation decided by federal courts from January 1, 2012 to December 31, 2014.

Design/methodology/approach

Legal documents from the US Securities and Exchange Commission, LexisNexis and Westlaw databases were coded to determine profile, patterns of trading and settlement outcomes.

Findings

Results of statistical analysis indicate that a defendant in both civil and criminal cases is more likely to trade on the information when he/she receives a direct, financial benefit from breaching his/her duty of confidentiality. The defendant tipper is also more likely to pass on the information to a close personal friend, business associate or family member. The average amount of profit of defendants in both civil and criminal proceedings substantially exceeds the average amount of their settlements.

Originality/value

This paper offers support for the rational choice model – insider trading is often based on rational calculations of benefits not only to the defendant but also to his/her family and associates. Although the threat of civil enforcement and criminal proceedings may possibly deter him/her from committing the crime, results indicate that the amounts of settlement in both proceedings are considerably lower than the amount of profits obtained from the offense.

Digital Object Identifier (DOI)

https://doi.org/10.1108/JFC-07-2018-0068

Comments

This is the author accepted manuscript of:

Spaic, A., Nolasco, C.A., Tsai, L.C.-F. and Vaughn, M.S. (2019), "Does insider trading pay? An analysis of trading and tipping activities in insider trading litigation", Journal of Financial Crime, Vol. 26 No. 2, pp. 647-664. https://doi.org/10.1108/JFC-07-2018-0068

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