I. Introduction
More Americans are investing in the stock market than ever before and Americans now have almost twice as much money invested in the stock market as in commercial banks. This reflects Americans' trust and confidence in the American stock markets and that trust stems from a belief that the government relentlessly pursues its mandate to maintain the fairness and integrity of the stock markets. An essential part of the regulation of the securities market is the vigorous enforcement of laws against insider trading, an enforcement program, which includes both civil and criminal prosecution of insider trading cases.
"Insider trading" is a term subject to many definitions and implications and it encompasses both legal and prohibited activity. Insider trading takes place legally every day, when corporate insiders – officers, directors or employees – buy or sell stock in their own companies within the confines of company policy and the regulations governing this trading.
The type of insider trading I will discuss in this paper is the trading that takes place when those privileged with confidential information about important events use the special advantage of that knowledge to reap profits or avoid losses on the stock market, to the detriment of the source of the information and to the typical investors who buy or sell their stock without the advantage of "inside" information.
The American notion that insider trading is wrong was well-established long before the passage of the federal securities laws. In 1909, the United States Supreme Court held that a director of a corporation who knew that the value of the stock of his company was about to skyrocket committed fraud when he bought company stock from an outsider wit ...