Dirks Test
Categories: Education, Financial Theory
What's the square root of pi? Yeah, okay...different test.
The standard that makes Securities and Exchange Commission (SEC) enforcers rub their hands together with glee is, in fact, the real Dirks Test. Turn your head. Cough.
The Dirks Test establishes the criteria for what constitutes insider trading. It's named after a 1984 Supreme Court ruling, Dirks v. SEC.
According to the Dirks Test, an individual can be found guilty of insider trading if they meet two criteria: first, they breached their fiduciary duty to a company by disclosing nonpublic information, and second, they did so knowingly.
Did they whisper about the company being bought by Microsoft at the beauty shop? Did they nudge nudge and wink wink to juuuust lead would-be buyers of the shares to do so..."risklessly"?
Should they have known better? That's all part of the Dirks Test. Know what you can know; and tell others the same. Otherwise, hope you look good in stripes.
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Finance a la shmoop what is the SEC right well the SEC or
Securities Exchange Commission has nothing to do with a realtor getting 6% [Realtor receiving a cheque off a man]
Commission when they sell your house commission here is about committing to
do right by investors well why do we have a whole commission or army of [An army of men wearing suits and facepaint]
lawyers dedicated to the fair exchange of securities well because there was an
era brutally demonstrated in the 1920's when fast-talking sleazy wheelers and dealers
ripped off everyone from ma and pa kettle to aunt an uncle teapot yeah they would [Dealer ripping off people in the street]
prey upon the uneducated the uninformed the gullible the greedy painting stories
of great riches that the would-be investors could have if they just sold [Man telling a farmer to invest his land]
their twenty thousand acre farm and parted with ten grand to buy this
beautiful park that real estate developers wanted to turn into high-rise [Farmer receives a real-estate development]
condos but in fact many of those lands were actually swampland the only folks [Farmer holding a shovel in a swampland]
who might be moving in there were beavers deer flies and alligators and it
wasn't just real estate securities that were abused fake companies Lego bridge [Officer on stage waving baton]
building company bumper stickers R Us you know like that sprung up everywhere
with crazy promises that sounded plausible to those with barely a [Boy in a white vest beside a bumper sticker]
third-grade education but they were total scams the American public tired of
reading about uneducated investors losing all their money to fast talking [American man reading about investors]
sales people lobbied Congress to create the SEC in 1934 with its core pursuit [People protesting outside of congress]
being to regulate the buying and selling of securities in America yep pretty much
[Policeman blows his whistle] these were the investing police myriad laws and structures were put into place
mainly around full and fair disclosure of whatever security a money raising
company was selling that is if it really was swampland you had to disclose that [Man with an aligator for a head in a swampland]
it was swampland you couldn't claim it was something it wasn't using fancy
vocabulary that a normal ordinary person couldn't [Man confusing someone with fancy vocabulary]
understand like you couldn't you know polish a piece of crap and call it
marble the broader goal here was not to give Americans advice on what to buy and [American boy thinking about buying or selling]
sell but rather just to have full and fair disclosure of the facts so that
when a buyer did buy and got taken well at least then all the facts she needed [Woman meeting with an investor]
to make a rational and reasonable conclusion were right there in front of
her so hey anyone up for a game of marbles [Man throwing poo on the floor]