Question

Case 32.2 - United States v. O’Hagan" Please respond to the following:

Assess whether a securities firm will be more likely to modify its behavior in business based upon the holding of this case. If you were employed in the securities profession, state one particular way in which you modify your approach to be transparent to both your client and the Securities and Exchange Commission.

Answer 1

In this case the point of contention was insider trading and breach of SEC’s Rule 10 (b). As per the court ruling in this case there should be no misappropriation of confidential information. The law forbids any trading in securities that is based on undisclosed information.

Yes, based on the holding of this case, securities firm will be more likely to modify its behavior in business. The onus and the responsibility will be on the securities firm to ensure that the organization and its employees do not misappropriate confidential information in any manner whatsoever. Thus a securities firm, besides having to be particular to ensure that there is no instance of trading by a company insider, also has the additional burden or responsibility of ensuring that there is no trading that is based on misappropriation of information.

As an employee in the securities profession one particular way in which I can modify my approach to be more transparent to both my clients as well as the SEC is to provide adequate disclosures to my client that I do not trade in any securities that have been recommended by me or by my firm for trading purposes. Also I will not violate SEC’s rule 10 (b) by ever misappropriating any confidential information or seeking to gather any confidential information with regards to a company whose stock I am recommending to my clients. I can provide a disclosure to my clients that all trade and stock recommendations are based on the company’s fundamentals and is not based on any sort of confidential information pertaining to the company.