INSIDER TRADING Global Developments and Analysis INSIDER TRADING Global Developments and Analysis Edited by Paul U Ali Greg N Gregoriou CRC Press Taylor & Francis Group 6000 Broken Sound Parkway NW, Suite 300 Boca Raton, FL 33487-2742 © 2009 by Taylor & Francis Group, LLC CRC Press is an imprint of Taylor & Francis Group, an Informa business No claim to original U.S Government works Printed in the United States of America on acid-free paper 10 International Standard Book Number-13: 978-1-4200-7401-7 (Hardcover) This book contains information obtained from authentic and highly regarded sources Reasonable efforts have been made to publish reliable data and information, but the author and publisher cannot assume responsibility for the validity of all materials or the consequences of their use The authors and publishers have attempted to trace the copyright holders of all material reproduced in this publication and apologize to copyright holders if permission to publish in this form has 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corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe Library of Congress Cataloging-in-Publication Data Ali, Paul U Insider trading : global developments and analysis / Paul U Ali and Greg N Gregoriou p cm Includes bibliographical references and index ISBN 978-1-4200-7401-7 (alk paper) Insider trading in securities I Gregoriou, Greg N., 1956- II Title HG4551.A5847 2008 332.64 dc22 Visit the Taylor & Francis Web site at http://www.taylorandfrancis.com and the CRC Press Web site at http://www.crcpress.com 2008005100 Contents Introduction, ix About the Editors, xiii Contributors, xv About the Contributors, xix Acknowledgments, xxix Part 1 The Taxonomy of Insider Trading Market Inefficiencies and Inequities of Insider Trading—An Economic Analysis Colin Read Securities Fraud and Its Enforcement: The Case of Martha Stewart 13 Geraldine Szott Moohr An Economic and Ethical Look at Insider Trading 35 Robert W McGee Martha Stewart: Insider Trader? 49 Joan MacLeod Heminway Insider Trading Regulation in Transition Economies 67 Robert W McGee v vi < Contents Credit Derivatives and Inside Information 89 Paul U Ali Part Regulating Insider Trading A Illegal Insider Trading Inside Information and the European Market Abuse Directive (2003/6) 99 Blanaid Clarke Insider Trading in Australia 129 Anna-Athanasia Dervenis The Evolution of Insider Trading Regulations in Japan 143 Sadakazu Osaki 10 Insider Trading in China 157 Zhihui Liu and Margaret Wang 11 Hedge Fund Fraud 167 Greg N Gregoriou and William Kelting 12 Extraterritorial Reach of the Insider Trading Regimes in Australia and the United States 177 Yee Ben Chaung 13 An Investigation of the Whistleblower– Insider Trading Connection: Evaluation and Recommendations Edward J Lusk and Michael Halperin 209 Contents < vii Part 14 Regulating Insider Trading B Legal Insider Trading A Middle Ground Position in the Insider Trading Debate: Deregulate the Sell Side 225 Thomas A Lambert 15 Positive and Negative Information—Insider Trading Rethought 245 Kristoffel R Grechenig Part 16 Economic Consequences of Insider Trading The Economic and Financial Features of Insider Trading 263 François-Éric R acicot and R aymond Théoret 17 Insider Trading, News Releases, and Ownership Concentration 279 Jana Fidrmuc, Marc Goergen, and Luc Renneboog 18 Incentives to Acquire Information 341 Philippe Grégoire 19 Insider Trading in Emerging Stock Markets: The Case of Brazil 369 Otavio Ribeiro de Medeiros 20 Legal Insider Trading and Stock Market Reaction: Evidence from the Netherlands 385 Nihat Aktas, Eric de Bodt, Ilham Riachi, and Jan de Smedt Index 403 Introduction Insider trading—the illegal use of price-sensitive, nonpublic information to buy and sell securities and other financial instruments—has long been considered an endemic feature of the world’s financial markets, despite the almost-universal criminalization of insider trading It is thus unsurprising that the recent boom in mergers and acquisitions has been accompanied by a resurgence in insider trading and a concomitant increase in the prosecution of insider trading on a scale not seen since the 1980s (Drummond 2007; Economist 2007) The U.S Securities and Exchange Commission (SEC), for instance, has made clear that it views prosecuting insider trading a priority and has recently devoted considerably more resources to monitoring suspicious trading in securities and security-linked derivatives SEC Chairman Christopher Cox, in his testimony to the U.S Congress in early 2007, identified insider trading as one of three major risks affecting the U.S capital markets (SEC 2007b) This new focus on insider trading is well illustrated by three major insider trading–related lawsuits brought by the SEC during 2007 In March 2007, the SEC charged fourteen persons, including three hedge funds, with illegally trading shares using information stolen from two investment banks (SEC 2007a) Then, in May 2007, the SEC charged a New York–based investment banker with illegally providing inside information to an accomplice in Pakistan who purchased call options over TXU Corp shares ahead of the buyout of TXU Corp by KKR and Texas Pacific (SEC 2007c) Also, in May 2007, the SEC charged a Hong Kong couple with illegally trading Dow Jones shares ahead of the announcement of New Corp’s takeover offer for Dow Jones (2007d) The prohibition of insider trading and the imposition of criminal penalties for insider trading have a moral dimension One of the key justifications for this response to insider trading is that it is “unfair” or even “immoral” for ix Index < 411 K Kabir, Rez, 279n Kara and Denning studies, 38 Kasser case, 193 Kauthar SDN BHD v Sternberg, 190, 193 Kelting, William, 167–174, xxii–xxiii Kinwat Holdings Ltd v Platform Ltd, 113 Knox, Justice, 124 Kohlberg Kravis Roberts firm, 179 Komatsu Ltd., 155 Korea (Republic of), 81 Krulewitch v United States, 29 Kruse case, 183 Kubik, Jeffrey, 233 L Labor theory of value, 68–69 Laffoy, Justice Mary (Republic of Ireland), 119–121, 124 Lakonishok, Shleifer, and Vishny benchmark, 299n Lambert, Thomas A., 225–241, xxiii Lamfalussy, Alexandre, 101 Lamfalussy format and procedures, 100, 103, 105, 126 Latvia, 82 Laws and regulations Australia, 133–136, 179–182 Brazil, 373–375 China, 160–163 effectiveness, Australia, 138–141 financial newsletters, 45 regulation in transition economies, 74–76 United Kingdom, 283–287 United States, 188–189, 283–287 whistleblowing, 219–220 Leasco Data Processing Equipment Corporation v Maxwell, 191, 197 Legal insider trading, 79–80, see also Netherlands Legislation Japan, insider trading, 144–149 Netherlands stock market, 389–393 Leland studies, 37 Lemons, 8, 265, 266, 269 Leniency of punishments, 159–160, see also Penalties LEP Group PLC case, 196 Level playing field argument market fairness theory, 132 misapplication, 44–45 regulation in transition economies, 69–70 Levinson case, 64, 119 Likelihood of effect, 122–123 “Liming,” 163 Liquidity allocation, 347–348 Liquidity traders problem, 359–360 risk averseness, 343, 352 Literature reviews economics and ethics, 36–39 news releases and ownership concentration, 287–292 Lithuania, 82 Liu, Zhihui, 157–165, xxiii Livedoor Co Ltd., 152, 154 Loans, 75, 76 Location of conduct, 183–185 Locke’s concept, 210 Lock-in effect, 290 London Share Price Database (LSPD), 294 Long-term studies, 387–389 LSPD, see London Share Price Database (LSPD) Luckins v Highway Motel (Carnarvon) Pty Ltd, 188 Lund case, 124 Lusk, Edward J., 177–206, xxiv Lynde case, 113 M MacArthur, General Douglas, 144 Macey viewpoint, 210–212 Macken, Justice, 125 Majoritarian default, 241 Makor Issues & Rights, Ltd case, 34 Maldonado-Bear, Bear and, studies, 38 Manchee, Andrew, 137–138 Manhattan Fund fraud, 173 Manipulation, 78, 239 Manne studies, 38 412 < Index Mansfield, Justice John R., 124 Maricopa fraud, 173 Market Abuse Directive (MAD) expectation of market, 109–112 fundamentals, 100–103, 126 gauging share price effect, 123–126 historical background, 100–103 information of a precise nature, 105–108 inside information defined, 103–105 likelihood of effect, 122–123 nonpublic information, 112–116 price sensitivity, 116–126 reasonable investor test, 117–122 transferable securities and issuers, 108–109 Market reaction director’s purchases, 304–308, 333–334 Netherlands stock market, 393–398 Market value, economic analysis, 8–9 Markus Blechner v Daimler-Benz AG, 193 Marx, Karl, 68 Mason, Justice Keith, 188 Massaging information, 231 “Material facts” term, 148 Mauro da Costa Braga, 370–371 Maxwell case, 191, 197 McConnell, Chakravarty and, studies, 37 McDonald’s example, 40, 70 MCG, Inc v Great Western Energy Corp., 194 McGee, Robert W., 35–46, 67–84, xxiv McGowan, Gerard, 140 Means, Berle and, studies, 39 Measurement issue, 71 Medical ethics example, 42 Meng, Allen Ng Poh case, 119 Merkel, Justice Ron, 184–185 Merrill Lynch, Pierce, Fenner & Smith, Inc., 62 Methodology Netherlands stock market, 393–394 news releases and ownership concentration, 299–301, 302–303 Metrick and Zeckhauser, Jeng, studies, 38 Mexico, 371 Microsoft Corporation, Petitioner v AT&T Corporation, 190 Middle ground position asymmetric policy, 241 corporate managers, 230–232 debate, 227–229 fraud, eventual, 238–239 fundamentals, 226–227 investor benefits, 229–233 investor costs, 239–241 investor harm, 234–239 majoritarian default, 241 negative NPV Greenfield investments, 237–238 net present value investments, 237–238 overvaluation, 229–239 price-decreasing, 229–241 stock analysts, 232–233 value-destroying acquisitions, 236–237 Miller and Rock theory, 267 Minimum contacts, 199–200 Minorco, S.A case, 195 Misappropriation of information theory Bacanovic, Peter, 58–61 description of, 60 doctrine establishment, 55–56 Faneuil, Douglas, 58–61 fundamentals, 132 positive information, 250–252 Stewart, Martha case, 58–61 Modeling, incentives for information acquisition, 344–347 Moeller, Sara, 236 Moohr, Geraldine Szott, 13–34, xxiv–xxv Moral hazard concept of, 264, 265–268 inside information impact, 270–271 Morrison & Foerster, LLP, 215, 218–219 Mother Court of securities law, 194 Multiple perfectly informed traders, 362 Murakami, Yoshiaki, 147, 152 Murakami Fund case, 152–153 Mutual Funds Integrity and Fee Transparency Act, 172 Myers, Inc case, 124–125 Index < 413 N Naseem, Hafiz, 178 Nash v Lynde, 113 Negative and positive information collusive agreements, 252–253 Dirks v SEC impact, 247–248 disclosure duties, 249–250 efficiency debate, 246–247 efficiency grounds, 248–249 foreknowledge, 257–258 fundamentals, 246, 258 misappropriation, 250–252 perverse incentives, 255–257 whistleblowing, 253–255 Negative NPV Greenfield investments, 237–238 Netherlands stock market data used, 393–394 debates, 386–387 delay of notification, 392 empirical methods, 394–395 exceptions to notification, 392 fundamentals, 386, 400–401 legislation analysis, 389–393 long-term studies, 387–389 market reactions study, 393–398 methodology, 393–394 obligation of notification, 390–391 short-term studies, 387 six month delay, 392–393 study results, 395–398 summary statistics, 395, 396 transactions that must be notified, 391 United States law, 392–393 Net present value (NPV) agency costs, 268 investments, sell side deregulation, 237–238 issuance of new stock, 377 Newkirk, Thomas, 212 News releases and ownership concentration bad performance and financial distress, 292, 326–327, 335 blockholders, 290–291, 316, 324–326, 334 data sources, 292–294 descriptive statistics, 295–299, 296–297 director’s purchases, 288, 304–308, 327, 332–334 entrenchment, 291–292, 324–326, 334 fundamentals, 280–283, 333–335 hypotheses, 288–292 information hierarchy, 288–289, 309–316, 334 literature reviews, 287–292 market reaction, 304–308, 333–334 methodology, 299–301, 302–303 news releases timing, 327, 332, 334–335 outside ownership effect, 316–326, 317–323 regulation, US and UK comparison, 283–287 test statistics, 335–338 thin trading, 333 News releases timing, 327, 332, 334–335 Nihilism, 38 “Nikkei Net” Web site, 149 1988 amendment, 145–147 Ninth Circuit Court of Appeals, 193 Nippon Broadcasting Co Ltd., 152 Nippon Orimono Kako case, 151–152, 154 Nippon Shoji case, 150–151 Nonpublic information Market Abuse Directive, 112–116 Netherlands legislation, 389 Stewart, Martha, 56–57 tipper/tippee application, 62 Nonsynchronous trading effect, 336 Nontrading effect, 336 No prior convictions, China, 159 Northway Inc case, 119, 122 Notification, Netherlands delay of, 392 exceptions to, 392 obligation, 390–391 transaction requirements, 391 NPV, see Net present value (NPV) O Obligation of notification, 390–391 Obstruction charges, 26, 28 OECD, see Organization for Economic Cooperation and Development (OECD) 414 < Index OECD Principles of Corporate Governance: Draft Revised, 77 O’Hagan, James, 38, 55–56, 248 O’Hagan case doctrine establishment, 55–56, 246 insider trading law, 55–56 insider trading prohibition, 132 misappropriation application, 58–61, 65 misappropriation theory, 19–20 tipper/tippee application, 62 O’Hara studies, 38 Oreamuno case, 257 Organization for Economic Cooperation and Development (OECD), 76–80 ORIKA Capital Co Ltd., 151 Osaki, Sadakazu, 143–156, xxv O’Sullivan, Julie, 26 Outside ownership effect, 316–326, 317–323 Outsider trading, 255–257 Overlap, civil and criminal law, 20–22 Overlapping crimes, 26–27 Overvaluation, 229–239 Ownership concentration and news releases bad performance and financial distress, 292, 326–327, 335 blockholders, 290–291, 316, 324–326, 334 data sources, 292–294 descriptive statistics, 295–299, 296–297 director’s purchases, 288, 304–308, 327, 332–334 entrenchment, 291–292, 324–326, 334 fundamentals, 280–283, 333–335 hypotheses, 288–292 information hierarchy, 288–289, 309–316, 334 literature reviews, 287–292 market reaction, 304–308, 333–334 methodology, 299–301, 302–303 news releases timing, 327, 332, 334–335 outside ownership effect, 316–326, 317–323 regulation, US and UK comparison, 283–287 test statistics, 335–338 thin trading, 333 P Pacific Oilseeds Incorporated case, 193, 196 Padilla studies, 39 Palomino, Fred, 279n Papua New Guinea, 135 Patrick Corporation, 137–138 PCAOB, see Public Company Accounting Oversight Board (PCAOB) Penalties Australia, 139 civil fines, Japan, 153–155 defenses, 136–137 for not trading, 41, 74 Philippines, 80 proportionality, 10 severity, 159–160 Thailand, 80 white paper summary for Asian countries, 80 Perfectly informed traders, 343, 362–364 Perjury, 28 Perkins v Benguet Consolidated Mining Co., 200 Personal benefit test, 53, 54, 61 Personal jurisdiction Australia, 204 United States, 189, 198–199, 204, 205 Personal relationships, 63 “Person” defined, 182–183 Peru, 371 Perverse incentives, 255–257 Petitioner v AT&T Corporation case, 190 Petrobras, Braskem, and Ultra Group, 370 Philosophers example, 42 Philosophical base, 68–73 Piling-on charges, 27 Pinkerton v United States, 27 Pinn Fund fraud, 173 Piotroski and Smith, Bushman, studies, 38 Platform Ltd case, 113 Plea bargains, 31 Index < 415 Pluralist state, 72–73 Podgor, Ellen, 29 Ponzi schemes, 173 Positive and negative information collusive agreements, 252–253 Dirks v SEC impact, 247–248 disclosure duties, 249–250 efficiency debate, 246–247 efficiency grounds, 248–249 foreknowledge, 257–258 fundamentals, 246, 258 misappropriation, 250–252 perverse incentives, 255–257 whistleblowing, 253–255 Positive aspects of insider trading, 73–74 Positive-sum game, 42, 71 Posner, Richard, 39 Precise nature of information Market Abuse Directive, 105–108 Netherlands legislation, 389 Precontract disclosures, 241 Pre-1988 amendment, 144–145 Price-decreasing, 229–241 Price sensitivity, 116–126 Pricing functions, 357–359 Primary prohibition, 134 Principal statute and rule, 51 Prohibition arguments, 131–132 Property rights literature review, 38–39 protection, 45–46 Public Company Accounting Oversight Board (PCAOB), 172 Public image of charges, 28–29, 30, 34, 218–219 Public information, 112–116, 148, see also Nonpublic information Public policy ramifications, 9–10 Public Prosecutor v Allen Ng Poh Meng, 119 Public Prosecutor v Chua Seng Huat, 119 Punishments, leniency of, 159–160 Q QANTAS, 140 Quid pro quo, 54, 63 R Racicot, François-Éric, 263–275, xxv–xxvi Rahim, Ajaz, 178–179 Read, Colin, 3–11, xxvi Reasonable investor test, 117–122 Reasonableness, United States, 202–203 Recommendations, 216–220 Regulation, transition economies envy, 68–69 fundamentals, 67–68, 83–84 IMF position, 80–82 labor theory of value, 68–69 level playing field argument, 69–70 OECD position, 76–80 philosophical base, 68–73 positive aspects of insider trading, 73–74 regulation, 74–76 rights theory, 71–72 utilitarian approach, 70–71 World Bank position, 80–82, 83 Regulations Australia, 133–136, 179–182 Brazil, 373–375 China, 160–163 effectiveness, Australia, 138–141 financial newsletters, 45 regulation in transition economies, 74–76 United Kingdom, 283–287 United States, 188–189, 283–287 whistleblowing, 219–220 Relating to, 108–109 Remuneration issues, 36, 73, 249 Renneboog, Luc, 279–338 Republic of Korea, 81 Returns, financial, 271–273 Review of Standards and Codes, 77 Riachi, Ilham, 385–401, xxvi Ricardo’s theory of comparative advantage, 70 Rights theory conflicts, 45 ethics, 41–43, 42 regulation in transition economies, 71–72 416 < Index utilitarian approach comparison, 40–41, 71 Risk aversion economic analysis, 4, 4–5 liquidity traders, 343, 352 Rivkin, Rene, 138, 140 Rivkin case, 140 Robertson, Melissa, 212 Robinson v TCI/US West Communications Incorporated, 192 Royal Ahold NV Securities & ERISA Litigation, 189, 191, 193 Rudzewicz case, 199, 201–202 Rule 10B5-1 Plans flexibility, 215–216 fundamentals, 214–215 recommendations, 216–220 United States law, 50–56 Rule-breaking for gain, 220 R v Firns, 133, 135–136, 184 R v Kruse, 183 R v Rivkin, 140 S Salary supplement, 73, see also Compensation issues Sale, Hillary, 245n Sarbanes-Oxley Act (SOX) defining terms, 212, 213–214 hedge funds fraud, 171–173 historical background, 33 Saudi Arabia, 371 Schlingemann, Frederick, 236 Schoenbaum v Firstbrook, 194 Schroeder, Jeanne, 20 Schwalback, Joachim, 279n Scienter, 55, 64–65 Second Circuit Court of Appeals, 191, 194–197 Section (10b), Securities Exchange Act, 50–56 Securities and Exchange Commission (SEC), 285 Securities and Exchange Commission (SEC), as defendant Dirks v doctrine establishment, 246 insider trading law, 52–55 insider trading vs whistleblowing, 253 nonpublic information, 63–64 positive and negative information, 247–248 Stewart case, 19 tipper/tippee application, 61–62 Securities and Exchange Commission (SEC), as plaintiff v Alexander, 202, 205 v Bausch & Lomb, Inc., 124–125 v Euro Security Fund, 203 v Falbo, 124 v Kasser, 193 v Lund, 124 v Softpoint, Inc, 201–202 v Texas Gulf Sulphur Co., 115, 240, 248, 251 v Unifund Sal, 201–202 v Yun, 20 Securities and Exchange Law (SEL), 144, see also Japan Securities fraud charge, 22–25 Securities Law, 161–162, see also China Seigel, Michael, 29 SEL, see Securities and Exchange Law (SEL) Self-referenced credit derivatives, 92–94, 94 Sell side deregulation asymmetric policy, 241 corporate managers, 230–232 debate, 227–229 fraud, eventual, 238–239 fundamentals, 226–227 investor benefits, 229–233 investor costs, 239–241 investor harm, 234–239 majoritarian default, 241 negative NPV Greenfield investments, 237–238 net present value investments, 237–238 overvaluation, 229–239 price-decreasing, 229–241 stock analysts, 232–233 value-destroying acquisitions, 236–237 Index < 417 Senegal, 371 Sentencing, Martha Stewart case, 32–33 Servaes, Henri, 279n Seventh Circuit Court of Appeals, 193 Seyhun studies, 37 Share price effect, gauging, 123–126 Shenzhen Development Bank, 158 Short-swing profits, 213 Short-term studies, 387 Signatory Investments Pty Lid case, 187 Six month delay, 392–393 Skilling, Jeff, 235 Slack, Ellen, 209n Slobogin, Christopher, 29 Slovak Republic, 82 Slovin, Myron, 279n Smith, Adam, 68, 70 Smith, Bushman, Piotroski and, studies, 38 Smith case, 257 Smith (on behalf of National Parks and Wildlife Service) v Capewell, 187 Social welfare analysis, 38 consequences, 5–6, Macey viewpoint, 211 mixture of utilitarianism and rights, 72 Soft information, 231 Softpoint, Inc case, 201–202 Solan, Lawrence, 21 Sources misappropriation theory, 60 new releases and ownership concentration, 292–294 Special purpose vehicles (SPV), 93–94 Specific jurisdiction, 201–202 Sports example, 220 SPV, see Special purpose vehicles (SPV) Stambaugh, Robert F., 279n Statutory framework, 14–15 Stealth trading hypothesis, 398 Sternberg case, 190, 193 Stewart, Martha atypical aspects of trial, 30–32 charges, 18–29 conspiracy charge, 27 cover-up charges, 25–29 existence of scienter, 64–65 fundamentals, 14, 34, 50, 56–57, 65 indictment, 17–18 insider trading charge absence, 18–22 insider trading claim analysis, 57 insider trading law, U.S., 50–56 investigation, 15–17 misappropriation theory application, 58–61 new directions, 34–35 securities fraud charge, 22–25 sentence, 32–33 statutory framework, 14–15 summary of case, 15 tipper/tippee application, 61–63 trial, 29–32 typical aspects of trial, 29–30 Stock Exchange Yearbooks, 294 Stocks and stock markets, see also specific country new issue, 267, 377 option program, aeronautic industry case, 273–275 rumors and speculation, 342 sell side deregulation, 232–233 Stone, Ethan, 245n Stop loss order, 56 Strader, Kelly, 20 Study results bad performance and financial distress, 326–327, 335 blockholders, 316, 324–326, 334 director’s purchases, 304–308, 333–334 entrenchment, 324–326, 334 information hierarchy, 309–316, 334 Netherlands stock market, 395–398 Stulz, René M., 236 Subject matter jurisdiction, 189–190, 206 Summaries Martha Stewart case, 15 statistics, Netherlands stock market, 395, 396 Sumner (House of Lords), 113 Superior Court of California, 200 Sushka, Marie, 279n 418 < Index T Tacis, 76 Tang, Jian, 164 Tateho Chemical Industries Co Ltd., 145 TCI/US West Communications Incorporated case, 192 TD-Net system, 149 Tellabs, Inc v Makor Issues & Rights, Ltd., 34 Telstra, 140 Test statistics, 335–338 Tevanian, Avadis, 214 Texas Gulf Sulphur Co case, 115, 240, 248, 251 Texas Pacific Group, 179 The Brothers Karamazov, 71 Theocratic state, 72–73 Théoret, Raymond, 263–275, xxvii Thin trading, 333 Third Circuit Court of Appeals, 193 Thompson Financial, 232 Tipper/tippee application doctrine establishment, 52–55 Stewart, Martha case, 61–63 Tipping vs trading, 58 Toffoli case, 202 Toll Holdings Limited, 137 Torstila, Hartikainen and, studies, 37 TPG Newbridge Capital, 158 Trader’s golden rule, 210 Trading vs tipping, 58 “Trading windows,” 215 Transactions that must be notified, 391 Transferable securities, 103, 108–109 Transition economies, insider trading in Australia, 74 Bulgaria, 80–81 China, 75 Croatia, 81 Czech Republic, 80, 83 European Union, 75, 76 Georgia, 81 Hungary, 81, 83 Japan, 74 Korea (Republic of), 81 Latvia, 82 Lithuania, 82 Republic of Korea, 81 Slovak Republic, 82 United Kingdom, 74 Transition economies, regulation Australia, 133–136, 138–141 China, 160–163 financial newsletters, 45 regulation in transition economies, 74–76 United Kingdom comparison, 283–287 United States comparison, 283–287 Transparency impact on corruption, 371 Netherlands legislation, 389 provisions, spirit of definition, 214 Transparency International, 371, 373 Trial, Stewart case, 29–32 Trindade, Marcelo Fernandez, 375 Trojanowski, Greg, 279n TSC Industries Inc v Northway Inc., 119, 122 Tunhe Co., 163 TXU Corporation, 179 Typical aspects, Stewart trial, 29–30 U Uniform Prudent Investor Act, 174 Unifund Sal case, 201–202 United Dominions Corporation Ltd v Brian Proprietary Limited, 188 United Kingdom, see also Market Abuse Directive (MAD) insider trading in, 74 laws and regulations, 283–287 United States conduct, 190–191 District of Columbia Circuit, 192 effects test, 194–196 Eighth Circuit Court of Appeals, 193 Fifth Circuit Court of Appeals, 192 Fourth Circuit Court of Appeals, 193 general jurisdiction, 200 insider trading law, 50–56 judicial discretion, 196–198 jurisdictional coverage, 204–206 minimum contacts, 199–200 Netherlands stock market comparison, 392–393 Index < 419 Ninth Circuit Court of Appeals, 193 personal jurisdiction, 198–199 principal statute and rule, 51 reasonableness, 202–203 regulation outline, 188–189 Second Circuit Court of Appeals, 191 Seventh Circuit Court of Appeals, 193 specific jurisdiction, 201–202 subject matter jurisdiction, 189–190 Third Circuit Court of Appeals, 193 United States, as defendant Arthur Andersen v., 26 Blackmer v., 190 Blockburger v United States, 27–28 Chiarella v Dirks application, 53 doctrine establishment, 51–52, 246 fiduciary obligation, 19 insider trading law, 51–52 legislation, 189 Krulewitch v., 29 Pinkerton v., 27 United States, as plaintiff v Aguilar, 26 v Aluminum Co of America, 194 v Chiarella, 133 v Falcone, 20 v Faneuil, 30 v O’Hagan doctrine establishment, 55–56, 246 insider trading law, 55–56 insider trading prohibition, 132 misappropriation application, 58–61, 65 misappropriation theory, 19–20 tipper/tippee application, 62 v Smith, 257 v Stewart, 15 Unproductive activities, U.S Agency for International Development (USAID), 75, 76 US West Communications Incorporated case, 192 Utilitarian approach economics and ethics, 39–41 literature review, 36–37 regulation in transition economies, 70–71 rights, ignoring, 41, 71 V Vagueness doctrine, 24–25 Value-destroying acquisitions, 236–237 Veld, Chris, 279n Vencap, Ltd case, 195 Victimless crime, 73–74 Vivendi Universal, 197 Vizard, Steve, 140–141 W Waksal, Sam arrest, 22 duty breach, 57–59 existence of scienter, 64 nonpublic information, 62, 64–65 personal benefit test, 61 personal relationship, 59, 63 stock sale, 18, 20, 56 summary, 15 Walker Dr., 183–184 Walker, Martin, 279n Wang, Margaret, 157–165, xxvii Washington case, 199, 200 Watchdogs, 159 WB, see Whistleblowing (WB) Wealth sharing, Welch, David, 218 Welfare, see Social welfare Western democracies, 72–73 Whistleblowing (WB) Australia, 139 credibility, 218 darker side, 212–214 flexibility, 215–216 fundamentals, 210, 220 Macey viewpoint, 210–212 positive and negative information, 253–255 recommendations, 216–220 regulations, 219–220 Rule 10B5-1 Plans, 214–219 White collar criminal background, 160 420 < Index White Paper on Corporate Governance in Asia, 80 White Paper on Corporate Governance in South Eastern Europe, 78–79 Wiggs case, 113 Wilson Neill Limited case, 119, 122 Windows, company-designated, 215 Woodson case, 199, 203 World Bank, 75–77, 80–82, 83 World Trade Organization (WTO), 75, 76 World-Wide Volkswagen Corp v Woodson, 199, 203 WTO, see World Trade Organization (WTO) X Xinjiang Tianshan Co., 163–164 Y Young studies, 37 Yun case, 20 Z Zeckhauser, Jeng, Metrick and, studies, 38 Zoelsch v Arthur Andersen, 192 ...INSIDER TRADING Global Developments and Analysis INSIDER TRADING Global Developments and Analysis Edited by Paul U Ali Greg N Gregoriou CRC Press... trademarks, and are used only for identification and explanation without intent to infringe Library of Congress Cataloging-in-Publication Data Ali, Paul U Insider trading : global developments and analysis. .. Consequences of Insider Trading The Economic and Financial Features of Insider Trading 263 François-Éric R acicot and R aymond Théoret 17 Insider Trading, News Releases, and Ownership Concentration