Word: insiderism
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That's not to say that illegal insider trading is necessarily rampant among hedge funds. Considering that the typical fund was down by double digits in 2008 - a year in which hundreds went belly up - there's reason to believe that cheating (or at least competent cheating) isn't standard...
The line, though, between legitimate information-gathering and illegal insider trading is hardly a clear one. Technically, no laws ban trading on non-public information; prosecutions are based on legal theories that were developed in earlier court cases. "It's one of those areas where the courts say, 'I know...
The case law maintains that two main things must be established for an act to be illegal insider trading. First, the information in question must be material and non-public. Second, revealing or trading on the information must entail knowingly breaching a duty of "trust or confidence." This can be...
To successfully prosecute a person who receives insider information and then trades on it (such as a hedge-fund manager), the government must show that the person knew the information came from a breach of duty. In the case of Rajaratnam's alleged Google stock tip, he didn't talk...
But the current case involves many charges - all told, six defendants, nine companies whose securities were allegedly illegally traded and many more than that number of actual trades. And while one alleged instance of illegality conveniently included Chiesi comparing her situation to the most famous insider-trading case in recent...