Does Insider Trading Pay? Analysis of Trading and Tipping Activities in Insider Trading Litigation

• In Event: Posters I

Abstract

This study analyzes trading and tipping activities of corporate insiders and misappropriators in insider trading litigation decided by federal courts from January 1, 2012 to December 31, 2014 (N=83). The study examines civil enforcement proceedings filed by the Securities and Exchange Commission (SEC) and criminal cases filed by the Department of Justice to determine patterns, profile, profits, and settlement outcomes in these proceedings. Results of statistical analysis indicated that a defendant in a civil or criminal insider trading case is more likely to trade on the information when he receives a direct, financial benefit from breaching his duty of confidentiality. The defendant-tipper was also more likely to pass on the information to a tippee who was a close personal friend, business associate, or family member (chi-square is significant at the p<.01). The average amount of profit of a defendant tipper (in both civil and criminal proceedings) was $4,103,459.53 while the average amount of his or her settlement with the SEC was only $602,252.09. On the other hand, the average amount of profit of a defendant tippee was $11,855,900.31 while the average amount of his or her settlement with the SEC was only $1,545,520.82.

Authors

• Claire Angelique Nolasco, Texas A&M University - San Antonio

• Aneta Spaic, University of Montenegro

• Lily Chi-Fang Tsai, University of Maryland Eastern Shore

• Michael S. Vaughn, Sam Houston State University