Nuqui, Reciella S.

BSBA-4A
FM 11 – Security Analysis
Activity 3

1. Give at least 3 actual cases of Insider Trading.

● R. Foster Winans

~R. Foster Winans was a columnist at the Wall Street Journal who wrote a
column called "Heard on the Street." In every column, he would profile a certain stock,
and the stocks featured in the column often went up or down according to Winans'
opinion. Winans arranged a deal where he leaked the contents of his column—
specifically the stock that he was going to detail—to a group of stockbrokers. The
stockbrokers would then purchase positions in the stock before the column was
published. After the brokers were able to make their own profits, they allegedly gave
some of their gains to Winans in return for his intelligence.

Winans was eventually caught by the SEC. His case was tricky because the column was
the personal opinion of Winans, rather than material insider information. However, the
SEC eventually convicted Winans based on the claim that the information about the
stocks contained in the column belonged to The Wall Street Journal and not to Winans
himself.

● Albert H. Wiggin

~After the Wall Street Crash of 1929, it was revealed that Albert H. Wiggin, the
respected head of Chase National Bank, had shorted more than 40,000 shares of his own
company.Using companies that were owned by his family to hide the trades, Wiggin built up a
position that actually gave him a vested interest in running his company into the ground. At the
time, there were no specific rules against short-selling stocks of your own company. So, in the
aftermath of the 1929 crash, when many different investors exited their positions of Chase
National Bank stock at the same time, Wiggin legally made over $4 million. In addition to the
profits he made from the short-selling of his own company's stock, Wiggin had also accepted a
pension of $100,000 a year for life from the bank. He later declined the pension as a result of
protests from the public and the media outcry. Wiggin was not the only corrupt actor during this
time; the Securities and Exchange Act of 1934 was passed in part as a response to the
widespread corruption that was revealed in the aftermath of the crash. It was intended to
increase transparency in the financial markets and decrease incidents of fraud or manipulation.
In fact, it has been said that drafters of the Act nicknamed Section 16, which addresses various
regulations that attempt to prevent and prosecute incidents of insider trading, the anti-Wiggin
section.
● Ivan Boesky

~Ivan Boesky is an American stock trader who became infamous for his role in an insider
trading scandal during the 1980s. This scandal also involved several other corporate officers,
employed by major U.S. investment banks, who were providing Boesky with tips about
upcoming corporate takeovers. Boesky had his own stock brokerage company, Ivan F. Boesky &
Company, and starting in 1975 when he opened his firm, he made vast amounts of money
speculating on corporate takeovers. In 1987, after a group of Boesky's corporate partners sued
Boesky for misleading legal agreements detailing their partnership, the Securities and Exchange
Commission (SEC) began investigating Boesky. It was later revealed that he was making his
investment decisions based on information received from corporate insiders.Boesky had been
paying employees of the investment banking firm Drexel Burnham Lambert involved with the
mergers and acquisitions (M&A) branch for information to help him guide his buys. Boesky
ended up profiting from nearly every major M&A deal in the 1980s, including Getty Oil, Nabisco,
Gulf Oil, Chevron, and Texaco. Boesky ended up cooperating with the Securities and Exchange
Commission (SEC) and became an informant, providing information to the SEC which eventually
led to the case against the financier Michael Milken. Boesky was convicted of insider trading in
1986, and received a prison sentence of 3.5 years and was fined $100 million. Although he was
released after only two years, Boesky has been permanently banned from working with
securities by the SEC.

2. If a person or corporation is suspected of illegal dealing such as inside trading and market
manipulation, what will be the legal action of the SEC regarding the matter?

~If someone is caught in the act of insider trading, he can either be sent to prison,
charged a fine, or both. According to the SEC in the US, a conviction for insider trading may lead
to a maximum fine of $5 million and up to 20 years of imprisonment.