Series 6

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Securities Industry Regulations - Insider Trading and Securities Fraud Enforcement Act of 1988

The Securities Act of 1934 prohibits insider trading, and the Insider Trading and Securities Fraud Enforcement Act of 1988 specifies the penalties for these prohibited activities.

What is an Insider?
An insider, affiliate or control person is defined as an officer, director or owner of more than 10% of the voting stock in a company, or the immediate family of any of these persons. This Act incorporates all of the prohibitions against the activities of insiders and the use of insider information. An insider is guilty of breaking SEC rules when using material, non-public information to trade securities, or when passing on information to another person who acts upon the information.

Insider Information Recipient Fines and Penalties
In addition to increasing the fines and penalties that can be levied, the 1988 Act also makes the recipient of insider information as guilty as the insider who was the source of the information. Investors who have suffered monetary damage because of insider trading have legal recourse against the insider or any other person who misuses non-public information. Furthermore, the SEC may seek civil and criminal penalties against anyone it believes to have violated this Act. Liability for violating this Act is capped at the greater of $1 million or 300% of profits made or losses avoided.

All broker-dealers must establish and actively enforce written supervisory procedures that prohibit the use of material non-public information by all persons affiliated with, interested in, or in any way engaged in securities-related activities.

Look Out!
Note, the following sections on the Securities Investors Protection Act of 1970 and Blue Sky Laws is no longer included in the new Test Series 6 study guidelines. We have included it here for your interest only.
Securities Investors Protection Act of 1970

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