Wednesday. November 8, 1961: Insider trading

From "The Iconic Insider Trading Cases," by Stephen M. Bainbridge, law professor, UCLA School of Law, Law & Economics Research Paper Series:

The modern federal insider trading prohibition fairly can be said to have begun with Securities and Exchange Commission's (SEC or "Commission") enforcement action in Cady, Roberts & Co. Curtiss-Wright Corporation's board of directors decided to reduce the company's quarterly dividend. One of the directors, J. Cheever Cowdin, was also a partner of stock brokerage firm Cady, Roberts & Co. Before the news was announced, Cowdin informed one of his partners, Robert M. Gintel, of the impending dividend cut. Gintel then sold several thousand shares of Curtiss-Wright stock held in customer accounts over which he had discretionary trading authority. When the dividend cut was announced, Curtiss-Wright's stock price fell several dollars per share. Gintel's customers thus avoided substantial losses.
Cady, Roberts involved what is now known as tipping: an insider who knows confidential infromation does not himself trade, but rather informs -- tips -- someone else, who does trade. It also involved trading on an impersonal stock exchange, instead of a face-to-face transaction. As the SEC acknowledged, this made it "a case of first impression." Nonetheless, the SEC held that Gintel had violated Rule 10b-5.

* SEC ruling (in PDF form): @
* Summary of case and links (from sechistorical.org): @
* Insider trading timeline (from procon.org): @
* General information about insider trading (from upstartraising.com): @
* "From Horse Trading to Insider Trading: The Historical Antecedents of the Insider Trading Debate" (Paula J. Dalley, William and Mary Law Review, 1998): @

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