The Deterrent Effect of Insider Trading Enforcement Actions

2021 ◽  
Author(s):  
Robert Henry Davidson ◽  
Christo Pirinsky
Keyword(s):  
Insider Trading ◽  
Deterrent Effect ◽  
Lower Probability ◽  
Enforcement Action ◽  
Abnormal Profits

We analyze whether exposure to an SEC insider trading enforcement action affects how insiders trade. We find that following an insider trading enforcement action at one firm, exposed insiders earn significantly lower abnormal profits from their trades at other firms compared to non-exposed insiders. The deterrent effect is stronger when a fellow insider is convicted and is similarly significant both pre- and post-SOX. Following the enforcement event, exposed insiders do not trade less frequently, but do trade significantly fewer shares per trade. Insiders who have witnessed an enforcement action have a lower probability for future conviction than their unexposed peers.

Insider trading surrounding securities class action litigation and settlement announcements

2017 ◽  
Vol 43 (1) ◽  
pp. 124-140 ◽  
Author(s):  
Frederick Davis ◽  
Behzad Taghipour ◽  
Thomas J. Walker
Keyword(s):  
Insider Trading ◽  
Private Information ◽  
Stock Prices ◽  
Class Action ◽  
Market Model ◽  
Trading Activity ◽  
Content Type ◽  
Sarbanes Oxley ◽  
Abnormal Profits ◽  
The Impact

Purpose The purpose of this paper is to investigate the trading patterns of corporate insiders, both managing and non-managing, around the announcement dates of securities class action lawsuits and related legal settlements. Design/methodology/approach The authors use market model event study methodology to examine the impact of class action litigation and settlement announcements on the stock prices of sued firms. The authors then determine the extent of abnormal insider trading surrounding such announcements by comparing insider trading activity (volume and transaction counts) to prior insider trading in the same firm, and to a matched sample of firms not experiencing such litigation announcements. A multivariate framework is utilized to provide further insight into the determinants of such abnormal insider trading. Findings The authors establish that class action litigation and settlement announcements have a significant impact on the stock prices of sued firms, and that foreknowledge of these events appears to be used by insiders to earn abnormal profits. Moreover, results indicate that managing insiders exhibit higher opportunistic abnormal trading activity than non-managing insiders. Multivariate analysis shows that size, prior firm returns, and the implementation of the Sarbanes-Oxley Act are important determinants of such insider trading. Originality/value This appears to be the first paper to analyze insider trading surrounding class action settlement announcements, and raises concerns about the ethical conduct of certain insider groups while highlighting the importance of access to private information, even amongst insiders themselves.

SEC requires hedge funds to prevent insider trading despite unsettled legal definition

2017 ◽  
Vol 18 (1) ◽  
pp. 63-64
Author(s):  
Nicolas Morgan ◽  
Art Zwickel ◽  
Thomas A. Zaccaro ◽  
Jenifer Q. Doan
Keyword(s):  
Supreme Court ◽  
Insider Trading ◽  
Legal Concept ◽  
Content Type ◽  
Legal Definition ◽  
Enforcement Action ◽  
The Us ◽  
Us Supreme Court ◽  
Investment Advisers ◽  
Definition Of

Purpose To explain the import of a recent enforcement action by the US Securities and Exchange Commission (SEC) against an investment adviser for failing to prevent insider trading against the context of an unsettled legal definition of “insider trading” as evidenced by the issue presented in a recent case before the US Supreme Court. Design/methodology/approach Reviews the principal issues raised by the SEC in its enforcement action, legal requirements imposed on investment advisers, and the insider trading issues presented by the US Supreme Court case. Findings Because the legal concept of insider trading has developed through case law and is not defined by statute, it remains uncertain, and therefore the practice of insider trading will be difficult to prevent without restricting activities that could ultimately be determined to be legal. Practical implications In light of the SEC’s high threshold for investment advisers to prevent insider trading and the uncertain legal definition of that concept, investment advisers should review their insider trading policies and err on the side of caution. Originality/value Practical guidance from an experienced former SEC counsel and SEC practitioners offers new insights into the steps investment advisers should take in response to SEC enforcement activities and nebulous legal definitions.

scholarly journals Criminal sanctions for insider trading: Comparison with Singapore

2019 ◽  
Vol 19 (2) ◽  
pp. 484
Author(s):  
Ainul Azizah
Keyword(s):  
Insider Trading ◽  
Capital Market ◽  
Research Method ◽  
Deterrent Effect ◽  
Material Loss ◽  
Philosophical Foundations ◽  
Criminal Sanctions ◽  
The Future ◽  
The Government ◽  
The Capital Market

Insider trading is one of the crimes in the capital market that causes a lot of material loss to the victim. Such a large loss has caused fears of investors to trade on the capital market in Indonesia. For this reason, the government is trying to prevent insider trading, the government has made a Capital Market Law, but this is not enough. For this reason, policies need to be made relating to criminal sanctions for perpretators insider trading in the future. The research method used is the normative legal research method. With a conceptual approach, comparison and Law. The legal issues that will be examined are the legal and philosophical foundations of criminal sanctions for perpetrators insider trading and criminal law policies relating to criminal sanctions for perpetrators insider trading in the future? The result is a legal basis for criminal sanctions for perpetrators insider trading is to provide a deterrent effect to the perpetrators so that it does not happen again and protect the public from insider trading. Policies relating to criminal sanctions for perpetrators insider trading are the use of schikking in resolving insider trading and by using non-litigation methods.Keyword : criminal sanctions; insider trading; comparison. 

The Deterrent Effect of Insider Trading Enforcement Actions

2021 ◽  
Author(s):  
Robert H. Davidson ◽  
Christo Angelov Pirinsky
Keyword(s):  
Insider Trading ◽  
Deterrent Effect

The Effect of Outcome Probability on Generalization in Predictive Learning

2019 ◽  
Vol 66 (1) ◽  
pp. 23-39 ◽  
Author(s):  
Hadar Ram ◽  
Dieter Struyf ◽  
Bram Vervliet ◽  
Gal Menahem ◽  
Nira Liberman
Keyword(s):  
High Probability ◽  
Lower Probability ◽  
Perceptual Similarity ◽  
Learning Paradigm ◽  
Predictive Learning ◽  
Lightning Bolt ◽  
Outcome Probability

Abstract. People apply what they learn from experience not only to the experienced stimuli, but also to novel stimuli. But what determines how widely people generalize what they have learned? Using a predictive learning paradigm, we examined the hypothesis that a low (vs. high) probability of an outcome following a predicting stimulus would widen generalization. In three experiments, participants learned which stimulus predicted an outcome (S+) and which stimulus did not (S−) and then indicated how much they expected the outcome after each of eight novel stimuli ranging in perceptual similarity to S+ and S−. The stimuli were rings of different sizes and the outcome was a picture of a lightning bolt. As hypothesized, a lower probability of the outcome widened generalization. That is, novel stimuli that were similar to S+ (but not to S−) produced expectations for the outcome that were as high as those associated with S+.

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