The theory of misappropriation was further applied by the Supreme Court in the 1997 United States v. O'Hagan case. During this case, O'Hagan was convicted with violation of insider trading provisions. Working at in a law firm representing Grand Metropolitan O’Hagan gained confidential information about the company’s plan offer a tender to Pillsbury Co. he used this information to buy call options on Pillsbury stock, an act that brought him a profit of $4 million. O’Hagan was convicted with fraud.
The court argued that O’Hagan had committed fraud for using confidential information to benefit him in the securities trade, a move that breached the duty owed to the information source (Miller & Jentz, 2009). It is established that insider trading has numerous ethical implications. The practice is a major source of unfair competition in the securities trading business. This is because it gives competitive advantage to influential members of the corporation in terms of profitable stock trading through access of non-public information about the company.
On the other hand, insider trading can be a source of liability for the perpetuators. Such can be evident from the provisions of the Insider Trading Sanctions Act of 1984 and the Insider Trading and Securities Fraud Enforcement Act of 1988 which dictates for penalties of up to three times any benefits gained from illegal insider trading. Still established during the research is that insider trading in the American nation is governed by common laws, SEC rules, and numerous court statutes.
Under the deposit mobilisation meaning is the provision of the Securities Exchange Act of 1934, it is a crime for company officials, directors, employees, and stockholders owning more than 10% of the company shares to enjoy short-swing profits through transactions in the SEC within a period of six months. This law also prohibits fraud. The Williams act on the other side gives the SEC authority to prosecute individuals and companies for insider trading violations. All in all, given that insider trading potentially distorts the stock market, imposing measures to control insider trading is crucial in protecting the economic interest of public investors.
