1909
Supreme Court Establishes Insider Rule
The Supreme Court established a rule that the director of a company must either disclose the inside information or abstain from trading. Although the case, Strong v. Repide, made it clear that an executive could not use privileged information for profit, it did not address the issue of who was an insider.
1934
Congress Passes the Securities Exchange Act
The law contains a key provision, Section 10, broadly outlawing certain forms of stock fraud. Based on Section 10, the Securities and Exchange Commission in 1942 adopted Rule 10b-5, making the fraud provisions applicable to purchases as well as sales of securities. Section 10 and Rule 10b-5 became the key provisions to prosecute illegal insider trading. Neither provision actually defines insider trading.
1968
Texas Gulf Case Sets Insider Precedent
Acting on a tip that the Texas Gulf Sulphur Company had discovered a site near Timmins, Ontario, rich with copper ore, company officials traded heavily in the stock before disclosing the find.
The officials were sued by the Securities and Exchange Commission and by shareholders, who contended that the executives had traded on inside information. The United States Court of Appeals for the Second Circuit in New York ruled that anyone who possessed inside information of a consequential nature must either disclose it to all of the investing public or abstain from trading until that information was public.
Related
S.E.C. Insider Suit Names Texas Gulf Sulphur Aides (April 20, 1965)
Texas Gulf Aides Lose in S.E.C. Case (Aug. 14, 1968)
1980
Supreme Court Reverses Insider Conviction
In 1978, the S.E.C. said Vincent F. Chiarella, a printer at Pandick Press, had pieced together the names of corporate targets from confidential documents and then traded on that information. A federal court convicted Mr. Chiarella of 17 counts of securities fraud and sentenced him to one year in prison.
The Supreme Court said there must be a confidential relationship, or fiduciary duty, between any defendant and someone else for there to be a violation of the securities law.
1983
Supreme Court Backs Analyst Who Warned of Fraud
The Supreme Court rules that Raymond Dirks, a financial analyst, did not commit illegal insider trading by telling clients to sell their stock in Equity Funding.
Mr. Dirks had uncovered a huge fraud in 1973. Rather than make his discovery public, he told clients to get rid of their stock in the company.
The court said the duty of a person who receives an inside tip, known in securities jargon as a tippee, depended entirely on whether the source of the tip had breached a legal duty to the corporation’s shareholders in passing the information along.
Related
High Court Backs Stock Analyst Who Warned Clients About Fraud (July 2, 1983)
1986
Boesky Pays $100 Million Fine
Ivan F. Boesky, the former stock speculator, agreed to settle insider trading charges and provide evidence about other wrongdoing on Wall Street. He was known as a loner, a man called “Ivan the Terrible” for his apparent success in trading stocks.
Mr. Boesky was a specialist in risk arbitrage, where stocks are bought in anticipation of a takeover, a merger or change in corporate ownership. His case is said to have influenced Oliver Stone’s movie “Wall Street.”
Related
Big Trader to Pay U.S. $100 Million for Insider Abuses (Nov. 15, 1986)
Guilty Plea Entered by Boesky (April 24, 1987)
Boesky Sentenced to 3 Years in Jail in Insider Scandal (Dec. 19, 1987)
1987
Wall Street Journal Reporter’s Conviction Is Upheld
The Supreme Court upheld, 8 to 0, the conviction of R. Foster Winans on federal fraud charges for using advance knowledge of articles about publicly traded stocks to make illegal profits.
Related
Justices, 8-0, Back Conviction of Wall St. Writer (Nov. 17, 1987)
Winans OpEd: Let Everyone Use What Wall Street Knows (March 13, 2007)
1988
Drexel, a Wall St. Powerhouse, Pays $650 Million Fine
In the largest settlement ever of federal securities law violations, Drexel Burnham Lambert pleaded guilty to six felony counts. The deal ended an investigation lasting more than two years into Drexel’s relationship with Mr. Boesky.
The agreement was reached after a showdown between the firm’s chief executive and the United States attorney, Rudolph W. Giuliani, who gave the investment house until 4 p.m. to settle or be indicted.
Related
Drexel Concedes Guilt on Trading; to Pay $650 Million (Dec. 22, 1988)
Drexel, Symbol of Wall St. Era, Is Dismantling; Bankruptcy Filed (Feb. 14, 1990)
August 1989
6 Convicted of Racketeering in Stock Conspiracy
The five principals of a defunct New Jersey investment partnership and a former trader with Drexel Burnham Lambert were found guilty of creating illegal tax losses through fraudulent stock deals.
The defendants in the case, which focused on trading by the partnership, Princeton/Newport Partners, were the first to be charged with racketeering as part of the government’s investigation that began in 1986 into crime on Wall Street.
Related
6 Charged With Racketeering in Wall Street Insider Inquiry (Aug. 5, 1998)
Six Guilty of Stock Conspiracy (Aug. 1, 1989)
August 1989
Sandy Lewis Admits Rigging a Stock Price
Salim B. Lewis, a leading Wall Street trader who was once a special adviser to the Securities and Exchange Commission, pleaded guilty to criminal charges that he helped manipulate a stock price in 1986, in an action that benefited the American Express Company.
Mr. Lewis, known as Sandy, said only that he had acted after observing that a wave of short-selling was depressing the stock. President Bill Clinton pardoned him, and a federal court judge later said Mr. Lewis acted out of pure reforming impulse.
Related
A Prominent Trader Admits He Schemed to Rig a Stock Price (Aug. 31, 1989)
A Lonely Redemption (Sept. 16, 2012)
April 1990
Giuliani Called Too Zealous in Goldman Sachs Case
There was a long-held suspicion of insider trading in nearly every major takeover in the 1980s. “It was like free sex,” said the head of one of Wall Street’s largest investment banks. “You definitely saw the abuses growing, but you also saw the absence of people getting caught.”
Sweeping charges were leveled by the government and then dropped in 1987, five months after prosecutors arrested Robert A. Freeman of Goldman Sachs and two other traders, one being led from his office in handcuffs and another spending a night in jail before being charged.
The former head of risk arbitrage at Goldman was sentenced to four months in prison and fined $1 million for a single incident of insider trading.
Mr. Giuliani later said the case was perhaps the biggest mistake he had made as a prosecutor because the indictment had been brought too hastily.
Related
3 Leading Brokers Seized on Charges of Insider Trading; U.S. Inquiry Widens (Feb. 13, 1987)
With Key Executives’ Arrest, Wall Street Faces Challenge (Feb. 15, 1987)
A Top Trader at Goldman Sachs Pleads Guilty to Insider Charges (Aug. 18, 1989)
For Insider, Fine and 4-Month Term (April 18, 1990)
November 1990
Milken, King of ‘Junk Bonds,’ Gets Prison and $600 Million Fine
Michael R. Milken, who created the “junk bond” market that financed many big corporate takeovers in the 1980s, pleaded guilty to six criminal charges related to securities transactions. He did not plead guilty to any charges of racketeering or insider trading.
Mr. Milken had long maintained his innocence, but he broke down in court and cried, saying he had “hurt those who are closest to me.”
Mr. Milken, the former head of the junk bond department at the defunct Drexel, was sentenced to 10 years in prison, but Judge Kimba M. Wood reduced the sentence so that he served only two years.
Related
Milken Set to Pay a $600 Million Fine in Wall St. Fraud (April 21, 1990)
Milken Defends ‘Junk Bonds’ As He Enters His Guilty Plea (April 25, 1990)
Milken Gets 10 Years for Wall St. Crimes (Nov. 22, 1990)
Milken’s Sentence Reduced by Judge; 7 Months Are Left (Aug. 6, 1992)
1995
17 Charged in AT&T Insider Trading
In one of the largest cases of insider trading on record, the government charged that 17 people used confidential information about AT&T’s plans to acquire four companies from 1988 to 1993 to realize $2.6 million in illegal profits.
Related
17 Cited in Insider Trading (Feb. 10, 1995)
Supreme Court Upholds S.E.C.’s Theory of Insider Trading
In 1997, the Supreme Court ruled that insider trading laws applied to people who had confidential information even if they did not have any connection to the company whose shares were being traded.
2000
Affair With Adult Film Star Leads to Insider Conviction
James J. McDermott Jr., the former chairman and chief executive of the Manhattan investment bank Keefe, Bruyette & Woods, was convicted of stock fraud and conspiracy for leaking confidential financial information about a series of bank deals to an X-rated movie star.
Mr. McDermott, the first Wall Street chief executive charged with insider trading, was not accused of making any illegal profits himself. In fact, all the profits involved were paltry, considering the riches he might have missed out on.
Related
Ex-C.E.O. Convicted in Insider Trading Case (April 28, 2000)
2004
Martha Stewart Sentenced to Prison
The home-decorating mogul received the minimum sentence – five months in prison, plus five months of home confinement – for lying to federal investigators about a stock sale that she called “a small personal matter.”
Ms. Stewart’s troubles stemmed from her trade of ImClone shares just before bad news from that company was made public. Samuel D. Waksal, the founder of ImClone, was sentenced to a seven-year prison term after pleading guilty to orchestrating stock trades.
Related
Former Chief of ImClone Is Given 7-Year Term (June 11, 2003)
5 Months in Jail, Stewart Vows ‘I’ll Be Back’ (July 17, 2004)
2006
Enron Chiefs Guilty of Fraud
Kenneth L. Lay and Jeffrey K. Skilling, the chief executives who guided Enron through its spectacular rise and even more stunning fall, were found guilty of fraud and conspiracy. They were among the most prominent corporate leaders convicted in the parade of scandals that represented the get-rich-quick excesses and management failures of the 1990s.
Mr. Lay died six weeks after his conviction. Mr. Skilling was sentenced to 24 years in prison. His sentence was later reduced by 10 years.
Related
Before Debacle, Enron Insiders Cashed in $1.1 Billion in Shares (Jan. 13, 2002)
Two Enron Chiefs Are Convicted in Fraud and Conspiracy Trial (May 26, 2006)
Kenneth L. Lay, 64, Enron Founder and Symbol of Corporate Excess, Dies (July 6, 2006)
Enron’s Skilling Is Sentenced to 24 Years (Oct. 24, 2006)
Ex-Enron Chief’s Sentence Is Cut by 10 Years, to 14 (June 22, 2013)
2011
11 Years in Prison for Billionaire Rajaratnam
Raj Rajaratnam, the billionaire investor who once ran one of the world’s largest hedge funds, received the longest prison sentence ever for insider trading. Capping an aggressive government campaign that ensnared dozens, Preet Bharara’s prosecutors built the case against Mr. Rajaratnam, former head of the Galleon Group, with powerful wiretap evidence.
“I heard yesterday from somebody who’s on the board of Goldman Sachs that they are going to lose $2 per share,” Mr. Rajaratnam said to one of his employees in advance of the bank’s earnings announcement.
Related
Hedge Fund Billionaire Is Guilty of Insider Trading (May 12, 2011)
11 Years in Jail for Fund Chief in Stock Deals (Oct. 14, 2011)
2012
Ex-Goldman Director Leaked Boardroom Secrets
Rajat Gupta, who ran the consulting firm McKinsey & Company and served as a major adviser to the philanthropic efforts of Bill Gates and Bill Clinton, was sentenced to two years in prison for leaking boardroom secrets to Mr. Rajaratnam.
“He is a good man,” Judge Jed S. Rakoff said. “But the history of this country and the history of the world is full of examples of good men who did bad things.”
Related
Ex-Goldman Director Convicted of Passing Secrets to Hedge Fund (June 16, 2012)
Ex-Goldman Director to Serve 2 Years in Insider Case (Oct. 25, 2012)
November 2013
$1.2 Billion Fine for Cohen’s Hedge Fund
Steven Cohen’s firm, SAC Capital Advisors, became the first large Wall Street firm in a generation to confess to criminal conduct. The government also forced SAC to terminate its business of managing money for outside investors.
The government secured a series of guilty pleas by former SAC traders, but after more than a decade of poring over trading records, interviewing informants and issuing grand jury subpoenas, the district attorney’s office was not able to build a case against SAC’s billionaire owner.
December 2014
Appeals Court Overturns 2 Convictions
A federal appeals court overturned two of the government’s signature convictions, the case against the former hedge fund traders Todd Newman and Anthony Chiasson, who were tried together. And in the process, the court rewrote the insider trading playbook, imposing the greatest limits on prosecutors in a generation.
Citing the trial judge’s “erroneous” instructions to jurors, the court not only reversed the convictions but threw out the case altogether. The unanimous decision portends a partial unraveling of Mr. Bharara’s insider trading crackdown.
May 2016
Case Links Golfer, Banker and Gambler
Phil Mickelson and Thomas Davis, a former investment banker, owed money to William Walters, a high-rolling Las Vegas kingmaker. Federal prosecutors in Manhattan say those debts were at the center of a long-running insider trading scheme.
Mr. Mickelson was not accused of wrongdoing. But the S.E.C. listed him in a civil complaint as a relief defendant.
December 2016
Supreme Court Backs Prosecutors on Insider Trading
The Supreme Court said that gifts of confidential information from business executives to relatives violate securities laws.
Related
Supreme Court Sides With Prosecutors in Insider Trading Case (Dec. 6, 2016)
