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Insider Trading

            Consider this: "Imagine a boardroom of corporate executives, along with.
             lawyers, accountants, and investment bankers, plotting to take over a public .
             company. The date is set; an announcement is due within weeks. Meeting .
             adjourned, many of them phone their brokers and load up on the stock of the .
             target company. When the takeover is announced, the share price zooms up and .
             the lucky 'investors' dump their holdings for millions in profits." First .
             things first - insider trading is perfectly legal. Officers and directors who .
             owe a fiduciary duty to stockholders have just as much right to trade a .
             security as the next investor. But the crucial distinction between legal and .
             illegal insider trading lies in intent. What this paper plans to investigate is.
             the illegal aspects of insider trading. What is insider trading? According to .
             Section 10(b) of the Securities Exchange Act of 1934, it is "any.
             manipulative .
             or deceptive device in connection with the purchase or sale of any.
             security." .
             This ruling served as a deterrent for the early part of this century before the.
             stock market became such a vital part of our lives. But as the 1960's arrived .
             and illegal insider activity began to pick up, courts were handcuffed by this .
             vague definition. So judicial members were forced to interpret "on the.
             fly" .
             since Congress never gave a concrete definition. As a result, two theories of .
             insider trading liability have evolved over the past three decades through .
             judicial and administrative interpretation: the classical theory and the .
             misappropriation theory. The classical theory is the type of illegal activity .
             one usually thinks of when the words "insider trading" are mentioned.
             The .
             theory's framework emerged from the 1961 SEC administrative case of Cady .
             Roberts. This was the SEC's first attempt to regulate securities trading by .
             corporate insiders. The ruling paved the way for the traditional way we define .
             insider trading - "trading of a firm's stock or derivatives assets by its .

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