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Ferrara on Insider Trading and The Wall

Ralph C. Ferrara, Donna M. Nagy, Herbert Thomas

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This valuable book discusses the evolution of the law of insider trading and explores ways in which corporations can use compliance programs to deter wrongdoing, with particular attention to multi-service financial institutions. Ferrara on Insider Trading and The Wall demonstrates how such firms can implement “Chinese Walls” and other procedural devices to prevent employees who acquire material nonpublic information from sharing it with employees who trade securities.

The authors analyze the impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Sarbanes-Oxley Act and SEC regulations regarding selective disclosure and insider trading. They also discuss recent cases and other important developments such as Rule 10b5-1 trading plans and a heightened regulatory focus on hedge funds. In addition, the book provides suggested guidelines for deterring insider trading by employees.


Book #00632; looseleaf, one volume, 890 pages; published in 1995, updated as needed; no additional charge for updates during your subscription. Looseleaf print subscribers receive supplements. The online edition is updated automatically. ISBN: 978-1-58852-069-2.


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  • Availability: Available
  • Brand: Law Journal Press
  • Product Type: Books
  • Edition: 0
  • Page Count: 890
  • ISBN: 978-1-58852-069-2
  • Pub#/SKU#: 632
  • Volume(s): 1

Author Image
  • Ralph C. Ferrara

Ralph C. Ferrara is a litigator in the Washington, DC office of Proskauer Rose LLP.  His practice includes a wide range of litigation, business, regulatory and corporate governance matters. Here presents corporations and individuals in complex securities class and shareholder derivative actions as well as contested mergers and acquisitions;advises corporate clients on Securities and Exchange Commission reporting and disclosure requirements; represents corporations and individuals in government investigations and enforcement proceedings; conducts corporate internal investigations; handles consumer financial services issues; and counsels corporate officers and boards on all of these matters. Ralph has appeared five times before the United States Supreme Court on cases, appeared in each of the Federal Circuit Courts of Appeal and represented clients in state and federal courts across the country. In addition to these accomplishments, Ralph has written extensively on corporate law matters. His treatises are as follows:“Debt Despair & Deliverance: Commentary and Analysis on The Consumer Financial Protection Bureau,” “Consumer Financial Protection Bureau Reporter with Practice Commentary and Analysis,” 4 volumes, “Takeovers: A Strategic Guide to Mergers and Acquisitions,” “Ferrara on Insider Trading and the Wall,” “Takeovers: Strategic Guide to Mergers & Acquisitions,” “Securities Practice: Federal and State Enforcement,” “Managing Marketeers: Supervisory Responsibilities of Broker-Dealers 2nd Investment Advisers,” “Shareholder Derivative Litigation: Besieging the Board,” “Ferrara on Insider Trading and the Wall,” “Takeovers II: A Strategist's Manual for Business Combinations in the 1990s,” “Beyond Arbitration: Designing Alternatives to Securities Litigation,” “Stockbroker Supervision: Managing Stockbrokers and Surviving Sanctions,” “Redeeming Fallen Brokers: Managing the Aftermath of Broker-Dealer Enforcement Proceedings,” and “Takeovers: Attack & Survival.” In recognition of his achievements, he has been chosen as one of the country's leading lawyers in nine categories in the 2014 edition of The Best Lawyers in America, a status shared by only 100 of the 50,000 lawyers globally recognized by The Best Lawyers in America.

 


Also by Ralph C. Ferrara:
Shareholder Derivative Litigation: Besieging the Board


Author Image
  • Donna M. Nagy

Donna M. Nagy is the C. Ben Dutton Professor of Business Law at the Indiana University School of Law, Bloomington and teaches courses in Securities Regulation, Securities Litigation, and Corporations. Previously she was the Charles Hartsock Professor of Law at the University of Cincinnati College of Law. Prior to teaching, Professor Nagy was an associate in the Washington D.C. office of Debevoise & Plimpton, where she represented corporations and individuals in connection with government investigations and civil and criminal proceedings.



Author Image
  • Herbert Thomas

Herbert Thomas is the Chief Business Development and Marketing Officer of Dewey & LeBoeuf LLP, working from the New York office. Prior to joining Dewey & LeBoeuf, he was a securities litigator with Debevoise & Plimpton, where his practice focused on representing corporations and individuals in complex class and derivative actions.


PART ONE:
THE LAW OF INSIDER TRADING


CHAPTER 1
An Overview of Insider Trading

§1.01 Reasons for Prohibition
§1.02 Insider Trading—Sources of the Law
[1] The Federal Securities Laws
[2] Mail Fraud, Wire Fraud, and the New Crime of Securities Fraud
[3] RICO

CHAPTER 2
Government Actions

§2.01 Elements of a Rule 10b-5 Action
[1] Who Can Be Liable for Insider Trading?
[2] What Is Nonpublic Information?
[3] What Is Material Information
[4] Scienter: What Mental State Is Required?
[5] The “Possession vs. Use” Debate
[6] Types of Investment Instruments Subject to the Federal Prohibition
§2.02 The Historical Development of Liability for Insider Trading
[1] The Early Case Law
[2] The Parity-of-Information Theory
[3] Chiarella: The Supreme Court Endorses the “Classical Theory”
[4] Dirks: Tippees Liable Only When Tipper Breached a Duty to the Corporation’s Shareholders and Sought a Personal Benefit
[5] Dirks: The Constructive or Temporary Insider
[6] The Misappropriation Theory
[7] Trading Based on Deceptively Acquired Information
§2.03 Criminal Statutes Beyond the Federal Securities Laws
[1] Mail and Wire Fraud
[2] The Crime of Securities Fraud
[3] The Crime of Conspiracy
§2.04 Rule 14e-3
[1] Introduction
[2] Initial Challenges to Scope of Rule 14e-3
[3] O’Hagan and the Future Validity of Rule 14e-3
[4] Additional Issues Involving Rule 14e-3 Liability
§2.05 RICO
[1] Introduction
[2] Legal Requirements
§2.06 The Scandal On Wall Street
[1] The Levine Case
[2] The Boesky Case
[3] Other Related SEC Investigations
[4] The Milken Case
§2.07 From Wall Street to Main Street and Back
§2.08 Hedge Funds and Insider Trading
[1] Hedge Funds and Wall Street
[2] The Use of “Information Consultants”
[3] Hedge Funds as Corporate Lenders
[4] PIPE Transactions


CHAPTER 3
Private Rights of Action

§3.01 Introduction
§3.02  Section 20A
[1] Contemporaneous Trading in Securities of the Same Class
[2] Damages
[3] Controlling Person Liability
[4] Statute of Limitations
[5] Nonexclusivity
[6] Heightened Pleading Requirements
§3.03 Implied Private Rights of Action Under Rule 10b-5
[1] Standing
[2] Duty To Disclose or Abstain
[3] Causation and Reliance
[4] Damages
[5] Statute of Limitations
[6] Secondary Liability
[7] Actions by Corporations
§3.04 Implied Private Actions Under Rule 14e-3
§3.05 Section 16(b)
[1] Beneficial Ownership
[2] “Short Swing” Profits
§3.06 Insider Trading During Pension Fund Blackout Periods
§3.07 RICO
§3.08 Shareholder Derivative Suitsfor Insider Trading
[1] The Venerable Cases of Diamond and Brophy
[2] The Delaware Supreme Courts Ruling in Kahn v. KKR
[3] State Versus Federal Actions for Insider Trading
CHAPTER 4
Enforcement Remedies: ITSA, ITSFEA and Other Efforts by Congress to Sanction and Deter Insider Trading

§4.01 Civil Remedies for Insider Trading
[1] Injunctive Relief
[2] Equitable Relief: Disgorgement and Related Remedies
[3] Administrative Relief
[4] Monetary Penalties
[5] Officer and Director Bar Orders
[6] SEC Enforcement Statistics
§4.02 Criminal Remedies for Insider Trading
[1] Criminal Provisions in the Exchange Act and Securities Act
[2] Mail Fraud, Wire Fraud, and the New Crime of Securities Fraud
[3] The Federal Sentencing Guidelines
§4.03 Affirmative Defenses to Enforcement Actions and Prosecutions
[1] Statutes of Limitations
[2] Laches
[3] Double Jeopardy
§4.04 Additional Provisions in ITSA and ITSFEA
[1] Insider Trading in Options
[2] Bounties Authorized by Section 21A(e)
[3] Section 20A’s Private Right of Action
[4] Supervisory Requirements for Broker-Dealers and Registered Investment Advisers
§4.05 To Define (or Not to Define) Insider Trading
[1] No Statutory Definition
[2] Arguments for Statutory Definition
[3] Arguments Against Statutory Definition
[4] Proposals to Statutorily Define Insider Trading
§4.06 The Stop Trading on Congressional Knowledge Act (STOCK Act)
[1] A Brief Legislative History of the STOCK Act
[2] The STOCK Acts Principal Provisions

CHAPTER 5
Exchange Surveillance Systems: Important Elements of The System to Detect Insider Trading

§5.01 The Regulatory Pyramid
[1] The 2008 Allocation Plan for Insider Trading Surveillance, Investigation and Enforcement
[2] FINRAs Current Role
[3] Cooperative Computer Surveillance Systems
§5.02 SRO Surveillance Systems
[1] SRO Trading Surveillance Systems
[2] Cooperative Computer Surveillance Systems
[3] SRO Agreement Allocating Responsibility for Insider Trading Surveillance, Investigation and Enforcement
§5.03 Limitations Inherent in Computer Surveillance
[1] The Human Element
[2] The Internet
§5.04 Global Efforts to Combat Illegal Insider Trading
[1] IOSCO
[2] SEC Office of International Affairs
[3] Memoranda of Understanding
[4] International Dialogues

PART TWO:
CORPORATE COMPLIANCE PROGRAMS


CHAPTER 6
Legal and Practical Importance of Compliance and Ethics Programs

§6.01 Designing an Effective Compliance and Ethics Program
[1] Reasons for a Compliance and Ethics Program
[2] The Hallmarks of an Effective Compliance and Ethics Program
§6.02 Controlling Person Liability and Respondeat Superior
[1] Controlling Person Liability Under Section 20(a)
[2] Liability for Civil Penalty Under Section 21A
[3] Respondeat Superior Liability
[4] Compliance and Ethics Programs as a Defense to Secondary Liability
§6.03 Insider Trading Compliance Programs Mandated by Federal Securities Law
[1] Sections 15(f) and 204A
[2] Investment Advisers Act Rule 206(4)-7 and Investment Company Act Rule 38a-1
[3] Investment Advisers to Hedge Funds
§6.04 Public Pension Funds

CHAPTER 7
Corporate Compliance Programs for Securities Issuers: Trading and Corporate Disclosure Issues

§7.01 Introduction
§7.02 Trading in the Securities of the Issuer
[1] The NYSE Manual and the AMEX Guide
[2] Other Appropriate Procedures for Trading by Corporate Insiders in the Issuer’s Securities
§7.03 Disclosure Requirements Imposed on Issuers by Self-Regulatory Organizations
[1] General SRO Requirements for Prompt Disclosure
[2] Specific SRO Requirements Regarding Rumors, Unusual Market Activity, and Promotional Disclosure
[3] SRO Enforcement of Disclosure Requirements
§7.04 Mandatory Disclosure Under the Federal Securities Laws
[1] The Traditional Framework of Periodic Disclosure
[2] CEO/CFO Certification Requirements
[3] Real Time Disclosure
§7.05 Section 10(b) and Rule 10b-5
[1] Obligation to Speak Truthfully About Material Facts
[2] No General Affirmative Duty to Disclose
[3] The Practical Implications of Corporate Disclosure Responsibilities
§7.06 Projections, Forecasts, and Other Forward-Looking Statements
[1] “Bespeaks Caution” Doctrine
[2] Securities Act Rule 175 and Exchange Act Rule 3b-6
[3] Statutory Safe Harbor for Forward-Looking Information
§7.07 Insider Trading and Heightened Pleading Requirements
§7.08  Selective Disclosure to Securities Analysts
[1] The SEC’s Concerns Regarding Selective Disclosure
[2] Selective Disclosure as Illegal Tipping
[3] Regulation FD

PART THREE:
INSIDER TRADING AND ULTRA-MARTS


CHAPTER 8
Ultra-Marts and Insider Trading: The Law

§8.01 The Multiple Roles of Ultra-Marts
§8.02 Competing Duties and Priorities
[1] Fiduciary Duties to Nontrading Clients
[2] Duty to the Investing Public Not to Engage in Insider Trading
[3] Conflicts Manifest
§8.03 Attribution of Knowledge Within Ultra-Marts in Establishing Securities Law Violations
[1] General Principles of Attribution
[2] The Entity Defense in Rule 10b5-1
§8.04 Contexts for Insider Trading Violations Within Ultra-Marts
[1] Various Contexts for Employee Liability
[2] Contexts for Institutional Liability

CHAPTER 9
Chinese Walls and Other Measures Designed to Segregate Material, Nonpublic Information Within Ultra-Marts: The Legal Authority

§9.01 Introduction
§9.02 Origins: The Rise of the Chinese Wall
[1] The Merrill Lynch Proceeding
[2] The Slade Case
§9.03 Codification in SEC Rules
[1] Rule 14e-3
[2] Rule 10b5-1
[3] Investment Companies and Investment Advisers: Rule 17j-1 and Rule 204A-1
[4] Research Departments
[5] Trading Ahead of Research Reports
§9.04 Statutory Codification
[1] ITSA
[2] ITSFEA: Mandatory Chinese Walls
[3] The Sarbanes-Oxley Act of 2002 and Analysts’ Conflicts of Interest
§9.05 Examples of SEC Reliance on Chinese Walls in Settlement Proceedings
[1] The First Boston Case
[2] The Kidder, Peabody Case
§9.06 Extension of Chinese Walls to Other Contexts
[1] Rules Permitting Specialist Trading Activities by Broker-Dealers
[2] Commercial Banks
[3] Creditor Committees
[4] Law Firms
§9.07 Chinese Walls Designed to Reduce the Conflicts Facing Securities Analysts
[1] Mounting Concerns About Conflicting Interests
[2] Regulation AC
[3] The Global Settlement
[4] NYSE and NASD Rules to Separate Research Analysts from Investment Banking Activity

CHAPTER 10
Practical Measures Designed to Detect and Prevent Insider Trading Within Ultra-Marts

§10.01 Compliance Officers
§10.02 Chinese Walls
[1] Rationales for Chinese Walls
[2] Techniques and Procedures
[3] Practical Difficulties
[4] A Case Study in Information Control: A Law Firm’s Policies and Procedures
§10.03 Watch Lists
[1] Rationales
[2] Techniques and Procedures
§10.04 Restricted Lists
[1] Techniques and Procedures
[2] SEC Rules
[3] Practical Problems
§10.05 Rumor Lists
§10.06 Employee Trading Policies
[1] Trading Restrictions for Persons with Access to Material, Nonpublic Information
[2] Trading Restrictions for Securities Analysts
[3] Trading Restrictions for Investment Adviser Personnel
§10.07 Conclusion

Appendices
Table of Abbreviations
Index