Insider trading simply refers to trading in securities with possessive influence of material nonpublic information (Shin, 1996). Prohibition of insider trading derives the force of law under the federal securities law Rule number 10b-5, promulgated by courts pursuant to Section 10(b) of the Securities Exchange Act enacted in 1934. Additionally, the Insider Trading Sanctions Act ("ITSA") enacted by the congress in 1984 and the Insider Trading and Securities Fraud Enforcement Act ("ITSFEA") of 1988 basically expanded the definition of persons in “control" of information capable of giving undue selective advantage to certain investors (O’Brien, 1995). In particular, “insiders’ not only refer to managerial officers, directors and controlling shareholders, but also covers corporate outsiders in possession of inside information disseminated to them by either true or constructive insiders. Under the foregoing legislative initiatives, insider trading is a violation of the ethical coded conducts laid down and monitored by the federal government and the Securities Exchange Commission, which is an extension of the government.
Ordinarily, company employees as well as clients will most likely have access to material non-public information regarding possible advisory courses supposedly taken by clients or public companies (Harris, 2003). As an employee of Medivac, Manny was an insider with full knowledge of a proposed merger between her employer and Medtronic. Though the position held in the company is not mentioned in the case beforehand, Manny is seemingly knowledgeable enough of the treasure in waiting, perhaps with a basic understanding of insider trading regulatory principles to evade the consequential effects of violation scenarios. As stated above, the violation of insider trading law traditionally involves the purchase and/or sale of securities aided by "insider" material information that is/are non-public.