Return-Path: cypherpunks-errors@toad.com Date: Thu, 19 Sep 1996 15:46 EDT From: "E. Allen Smith" <EALLENSMITH@ocelot.Rutgers.EDU> Subject: Insider Trading - news report To: cypherpunks@toad.com X-Envelope-to: cypherpunks@toad.com X-VMS-To: IN%"cypherpunks@toad.com" Sender: owner-cypherpunks@toad.com

I'd be curious as to the comments of Black Unicorn and others on that legal finding - it does appear to make things at least a bit better in this area... including making it difficult to claim that insider information shouldn't be transmitted on the Net. Incidentally, I find AP's calling insider trading "fraud" rather biased. -Allen

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_________________________________________________________________ Direct Media _________________________________________________________________ INSIDER TRADING NEVER WENT AWAY __________________________________________________________________________ Copyright © 1996 Nando.net Copyright © 1996 The Associated Press

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WASHINGTON (Sep 18, 1996 10:35 a.m. EDT) -- One of the most infamous acts in the financial fraudster's playbook, insider trading, remains at record levels, despite a decade of steady crackdowns by regulators.

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The SEC brought one of its more unusual insider trading cases on Monday, when it sued the unnamed account holders in a Swiss and Bahamian accounts with insider trading ahead of The Gillette Co.'s merger proposal for Duracell International.

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One disturbing development for regulators is a recent decision by the 8th U.S. Circuit Court of Appeals that struck down one of the SEC's main enforcement tools in insider trading cases.

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The court, which covers several Midwestern states, rejected the so-called "misappropriation theory" in insider trading cases, which is used to nab people trading on inside information who don't owe a fiduciary duty to the company's shareholders. The court also rejected an SEC rule used to snare insider trading in tender offers.

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The 8th Circuit decision came in August in a Justice Department case against Minneapolis attorney James H. O'Hagan, who was charged with insider trading during the 1988 takeover bid of Pillsbury Co. by Grand Metropolitan PLC. SEC General Counsel Richard Walker has asked the appeals court for a rehearing on the matter.

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While the 8th Circuit decision represents a setback for the SEC, the agency usually brings its cases in the New York and Chicago areas, where the federal courts acknowledge these insider trading rules.

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Regulators say these enforcement tools are important because insider trading follows few patterns. In an analysis of 35 cases brought in 1995 that solely dealt with insider trading, Gerlach said 20 involved trading ahead of mergers, three ahead of other positive corporate announcements and six ahead of bad corporate news.

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He described 16 of the cases as "classic insider trading" involving an executive, company director or employee who traded on confidential, market sensitive information or tipped friends about it. Among the remaining cases, four involved trading by securities brokers or other industry officials, four involved law firm employees and one, an employee at an outside accounting firm.

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Investigators at the Nasdaq Stock Market's market surveillance unit refer a significant number of insider trading cases to the SEC. Halley Milligan, who heads a team of nine insider trading investigators at Nasdaq, said the market has made 73 referrals on suspected insider trading to the SEC so far in 1996, which is on par with last year, when 107 cases were referred to the agency.

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Nasdaq, like major stock markets, uses sophisticated computer technology to sniff out illegal trading. The Nasdaq system is called SWAT, or Stock Watch Automatic Tracking, which scans news databases after detecting any unusual trading.

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