¶ … Trading on the stock market is supposed to be fair and the risks involved applied equally to everyone involved. However, when a person is in possession of material, nonpublic information that allows them to profit by trading in stocks, this is considered to be "insider trading" and illegal. In addition, if a person possesses material, nonpublic information and passes that information on to another individual who then profits by making stock trades based on the information, then this is considered "tipping" and is also illegal. In the case of United States v. Bhagat, while the government failed to prove that Mr. Bhagat made his purchases on Nvidia stock based on the material, nonpublic information he received about Nvidia's contract with Microsoft, the fact that he made his purchases approximately twenty minutes after the information was sent in an email made it likely that he was involved in insider trading. (United States v. Bhagat, 2006) As for the charge of tipping, again the fact that Mr. Bhagat's friend Mamat Gill purchased a large quantity of Nvidia stock within a half hour of Mr. Bhagat's purchase also makes it likely that Mr. Bhagat "tipped" his friend. However, Mr. Bhagat claimed that he did not receive the email until after he had made his purchase and informed his friend. In his defense there would have been nothing illegal or inappropriate had this been the case and Mr. Bhagat was fully within his rights to purchase stock as long as he had not received the email. Unfortunately, for Mr. Bhagat's defense to be true, both men would have had to happen to purchase the stock just after the company announced to its employees that it had obtained the contract but before they announced it to the public. Any reasonable person would have to conclude that this was too much of a coincidence. Finally, it is also reasonable that with so much information and the ease of communication, it is likely that only a small percentage of insider trading is uncovered by the government. In fact, a deal or conflict in such a case can remain unresolved indefinitely, putting a hold on any business transactions that may be necessary for any American company involved. This kind of situation can also make forcing liability upon the company difficult when a foreign government is the owner and simply ignores any legal action. However, these situations can also be resolved diplomatically instead of legally. In 1933 the American and Soviet governments agreed to settle any of these claims between themselves and then undertake court actions in their own perspective nations to reclaim the funds. (United States v. Belmont, 1937)
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Insider trading involves the trading of stock based on material information not available to the general public. In the case of the Securities and Exchange Commission v. Texas Gulf Sulfur Company, and the purchase of TGS stock by Coates in particular, Coates attempted to purchase the stock twenty minutes after the company's announcement hoping to avoid a violation of the law. Coates knew that he had material information that, when released to the public at 10:00 A.M. On the day in question, would increase the price of TGS stock. (Securities and Exchange Commission v. Texas Gulf Sulfur Company, 1968) In an attempt to remain within the law, Coates waited until twenty minutes after the announcement to contact his broker with the intention that it was enough time for the general public to digest the information and be able to make an informed decision as to whether or not to purchase TGS stock. In his defense, Coates followed the law and did not contact his broker before the announcement but waited until after the announcement before making his purchase. Unfortunately for Mr. Coates, while waiting twenty minutes would, technically, make his trades occur after the public announcement, it was adjudicated to be before the information could be reasonable disseminated to the general public. Therefore even waiting twenty minutes to make it appear as if there was no insider trading was not enough to avoid being in violation of the Securities Exchange Act of 1934.
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The Foreign States Immunity Act of 1976 provides for foreign governments to be immune from the jurisdiction of United States courts, but with a few exceptions. Where a foreign government can be held to be under the jurisdiction of a U.S. court can include such circumstances as the foreign state waiving its immunity, the foreign government being involved in commercial activity within the U.S., or if the foreign government owns property in the U.S. In the case of the Petrograd Metal Works' deposits in the Belmont Bank, when the Soviet Government nationalized the company, it merged with a commercial entity and thus became engaged in commercial activity inside the United States. These types of situations can be problematic, for instance if that foreign government has no diplomatic contact, or is in ...
In the case of The Medical Committee for Human Rights v. Securities and Exchange Commission when the committee received a gift of shares of Dow Chemicals it became a stockholder under U.S. law and was entitled to all benefits, obligations and influence in the company to which holding stock entitles a person or entity. When the Committee proposed an amendment forbidding the company from selling napalm it had acted in accordance with the Securities Exchange Act of 1934 and was within its rights. (The Medical Committee for Human Rights v. Securities and Exchange Commission, 1970) This kind of influence within a company can allow for the inclusion of social, moral, and political issues into the operation of the company bringing about positive change. On the other hand allowing influence in a company currently providing products or services to the U.S. government, especially by a person or organization originating in a foreign nation, could allow foreign interests undue influence in the operation of the U.S. government.
The North American Free Trade Agreement (NAFTA) creates a free trade zone within the nations of Mexico, Canada and the United States. This agreement has allowed for the reduction or elimination of trade barriers increasing exports from the U.S. And making imports less expensive. This treaty is supposed to enhance the economies of all involved, however, since the price of labor is much less in Mexico, NAFTA creates an incentive to move production facilities out of the U.S. taking American jobs with them.
Like NAFTA, the World Trade Organization seeks to reduce or eliminate trade barriers between member nations around the globe as well as hear and decide trade disputes. This allows for a neutral third party to decide disputes between nations which have, in the past, led to conflicts and even wars. But membership in the WTO requires individual nation to submit to WTO authority over certain trade issues and in some cases supersedes individual nations' internal court systems. In effect, NAFTA and the WTO increase trade between nations but it comes at the price of national sovereignty.
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The "misappropriation theory" can be defined as the act of appropriating information from an employer so that an individual can then use that information to trade stocks based on that information. In the past the information had to involve the company from which the information came from and would affect, however, the United States v O'Hagan case expanded the boundary to any company that the stolen information could affect. When James O'Hagan purchased stock in a company that his client was interested in buying, he claimed that he had not acted illegally or unethically because he was not purchasing stock in the company owned by his client. At the time it was not entirely clear that purchasing stock in a secondary company that his client was interested in purchasing was wrong. In fact, it was not until this case that the legal precedent was established. Therefore, is had been established that Mr. O'Hagan acted inappropriately, not only by using secret information to personally gain, but in possibly adversely affecting his client's proposed purchase of Pillsbury. It was unethical for O'Hagan to profit at the expense and possible detrimental affect of his client and he also acted illegally when he misappropriated confidential information and personally profited from it. He illegally purchased stock in Pillsbury based on information misappropriated from his client and even though it was not his client's company that he purchased stock from, his purchasing stock from a company that would be affected by the information was found to in violation of the misappropriation clause. (United States v O'Hagan, 1997)
Medical Committee for Human Rights v. Securities and Exchange Commission. 139 U.S.
App. D.C. 226, 432 F.2d 659. (1970). Retrieved from https://supreme.justia.com/cases/federal/us/404/403/case.html
Securities and Exchange Commission v. Texas Gulf Sulfur Company. 41 F.2d 833.
(1968). Retrieved from http://law.justia.com/cases/federal/appellate-courts/F2/401/833/323889/
United States v. Bhagat. 436 F.3d 1140. (2006). Retrieved from http://openjurist.org/436/f3d/1140/united-states-v-bhagat
United States v. Belmont.…
In fact, a deal or conflict in such a case can remain unresolved indefinitely, putting a hold on any business transactions that may be necessary for any American company involved. This kind of situation can also make forcing liability upon the company difficult when a foreign government is the owner and simply ignores any legal action. However, these situations can also be resolved diplomatically instead of legally. In 1933 the American and Soviet governments agreed to settle any of these claims between themselves and then undertake court actions in their own perspective nations to reclaim the funds. (United States v. Belmont, 1937)
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