e information” as information that is both “material” and “nonpublic.” Material information includes any information that is public. Corporate directors and officers often obtain advance inside information because of their positions. Sometimes the information can affect the future market value of the corporate stock. It is obvious that their positions can give them a trading advantage over the general public and shareholders. Often times the insider is the company manager; other times it is the company’s lawyer, investment banker, or even the printer of the company’s financial statement. Anyone who has knowledge before public dissemination of that information stands to benefit from good news or bad news.An individual who obtains “inside information” about plans of large corporations can often make stock-trading profits by using the information to guide decisions relating to the purchase or sale of corporate securities. The primary constraint on firms’ ability to permit their insiders to trade on the basis of the nonpublic information they obtain in the course of the employment is rule 10b-5, which is the SEC’s principal weapon against insider trading. The SEC’s authority to enact rule 10b-5 is based on 10(b) of the 1934 act, a broad provision that authorizes the SEC to prohibit “any manipulative or deceptive device or contrivance.” In other words, federal securities laws do not expressly prohibit insider trading, the crime of insider trading was not defined in any statutes or rules administered by the SEC, and federal securities laws provide only one specific remedy for insider trading: an injunction against future violations. The SEC preferred the days when the law of insider trading was vague.Some people believe that insider trading should be permitted. One reasons is, if insider trading is best viewed from a property rights perspective, som...
