NCJ Number
134056
Journal
University of Illinois Law Review Volume: 1990 Issue: 3 Dated: (1990) Pages: 645-674
Date Published
1990
Length
30 pages
Annotation
The Insider Trading and Securities Fraud Enforcement Act (ITSFEA) of 1988 was enacted to combat insider trading and provide the Securities and Exchange Commission (SEC) and injured plaintiffs with more incentives and evidence to successfully pursue insider traders.
Abstract
Inside trading occurs when individuals who possess confidential information trade in securities markets based on that information. Insider trading may encourage corporate executives to create favorable conditions for a company's securities where executives stand to profit from improved conditions. The enactment of ITSFEA reflects the need to curb insider trading to solidify investor confidence in equity markets and to provide a continuing flow of business capital. The ITSFEA gives the SEC authority to seek civil penalties and prohibitions against fraud. The achievement of standing to sue an insider trader under ITSFEA requires plaintiffs to prove they traded securities of the same class contemporaneously with the defendant. Although a few courts have referred to ITSFEA, courts have not yet applied the Act's substance. The ITSFEA represents a step in the right direction because it codifies a private right of action for plaintiffs under the misappropriation theory. Congress, however, must define "securities of the same class" and "contemporaneous trading" to relieve potential confusion in courts, enable insider trading victims to avoid technical rulings, and help victims seek damages. 300 footnotes