Prohibited Practices & Market Manipulation

Trading on material, non-public information (MNPI) in breach of a duty; tippers, tippees, and misappropriators are all liable.

A reasonable investor would consider it important in making an investment decision (earnings surprise, merger, FDA action, CEO death, major lawsuit).

Civil: up to 3x profit gained or loss avoided (treble damages). Criminal: up to $5 million and 20 years for individuals; $25 million for entities.

Insider Trading Sanctions Act of 1984 and the Insider Trading and Securities Fraud Enforcement Act of 1988 (ITSFEA).

Restricted list: no proprietary or solicited trading in the security. Watch list: confidential surveillance only, trading still permitted.

Excessive trading in size or frequency in an account the rep controls, driven by the rep's compensation rather than the customer's objectives.

Choosing the security, amount, or side requires written discretionary authority; time and price discretion is allowed and good only for that day.

Placing a personal or firm order ahead of a known large customer block order to profit from the expected price move.

Engaging in private securities transactions outside the firm without prior written notice to and approval from the employer.

Painting the tape: a series of trades among colluding parties to fake active trading. Matched orders/wash trades: prearranged buys and sells with no change in beneficial ownership.

Selling a mutual fund just below a breakpoint so the customer pays a higher sales charge.

Gifts capped at $100 per person per year; guarantees against loss, borrowing/lending with customers, and commingling customer securities with firm assets are prohibited.