Describe the liability provisions of the Securities Exchange Act of 1934 against insider trading, under Rule 10b-5 of the Securities Exchange Act of 1934.
What will be an ideal response?
The basic rule under the 1934 Act is that a person with inside information must either disclose the information before trading or refrain from trading. Therefore, it is a violation of Rule 10b-5 to buy or sell either on an exchange or in a direct transaction when one is privy to material information that is not generally available to the investing public. This applies to almost anyone, not just to those who are usually viewed as insiders, such as directors, officers, and owners of a major interest in the company. It includes secretaries, researchers, and their supervisors. It also includes outside consultants, lawyers, engineers, financial and public relations advisors, and others who are given "inside" information for special purposes, such as news reporters and personnel of government agencies. Furthermore, tippees (those who are given or acquire the information without the need to know), such as stockbrokers or financial analysts and even relatives or friends of those with access to the inside information, are forbidden to trade on the information.
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Answer the following statement true (T) or false (F)