Foundations of Business - Research Paper Example

It is illegal to provide the material or the non-public information to others based upon which they may trade in the company securities. Question One: Types of Transactions Considered As Insider Trading There are various transactions that have been prohibited as stated by the company’s rules and regulation: I) Transaction in the securities of the company – When the employee is well aware of the material and the nonpublic information with regards to the company, he or she may not trade in the securities of the company, but counsel others to hold, buy or sell the securities of the companies.

They may even disclose the information of the company to others who might then trade. They may even assist others to engage in any of these activities. II) Transaction in the securities of other companies – Since the employees are well aware of the material and the nonpublic information of other companies because of their experience, therefore in this regards, the employees are forbidden to transact in the securities of other companies. III) Short sales – It may be the case that the employees of the company may borrow the securities in order to sell with a hope of price dropping.

They may intent to buy back the securities at the lower price in order to replace the borrowed securities. The employees of the company are then strictly prohibited to engage themselves in such kinds of short selling of the company’s securities (Heckmann Corporation, n.d.). Question Two: Specific Conditions Under Which Insider Trading Is Considered Illegal Under United States’ Federal Securities Laws. In the Securities Exchange Act, there are provisions designed to prohibit the insiders in the corporation to take any advantage of the insiders’ information in trading the corporation’s securities.

There are two federal statutes having the provisions forbidding the insider trading. They are the Securities Exchange Act of 1934 and the Insider Trading Sanctions Act of 1984. Prohibition of the insider trading can be warranted on the fairness and equity grounds. Under the federal securities law the basic prohibition of the insider trading can be derived from the rule 10b-5, disseminated pursuant to Section 10(b) of the Exchange Act. There is special condition where the insider trading is considered as illegal.

It would be completely illegal for any person or the individual to utilize the means and the instruments or the mail of national security exchange to make use of (a) any schemes, devices or artifice to defraud. (b) the untrue statement that is of the material fact or to fail to state the material fact that would have been essential to make the statements. (c) To engage in the activities of fraud or deceitfulness upon any person in relation to the purchase and sell of the securities. Since the major aim of the insider trading is to promote the fairness in the securities therefore the proscription only applies to the extent that the material information is not available to the public.

To the extent to which the insiders are in the possession of the material non-public information, the federal law bans on the trading in the securities of the subject company (Sapp, 2000). The insiders are also prohibited to provide “tips” to other outside persons such as friends or families. This can be termed as tipping. The insider or the ‘tipper’ is restricted from disclosing the other persons who is called the ‘