White Collar, Investigations and Enforcement

Working for private litigants in some cases and the government in others, NERA experts have over 20 years of experience in providing economic advice and testimony to parties involved in insider trading investigations and litigation. Typically, at least one of the following five issues is entailed in such an analysis:

Materiality

Since "insider trading" refers to trading while in possession of material non-public information, many insider trading cases involve disputed views as to whether the information at issue was indeed material. The behavior of the company's stock price when the information is ultimately made public is often relevant to a determination of materiality. NERA economists often apply event study techniques to estimate the stock price impact of the information, controlling for market and industry developments that also influence the price.

Public Knowledge of the Information

A related question calling for expert opinion is whether the information at issue was truly non-public when the defendant traded. NERA economists have extensive experience combing through news stories, analyst reports, SEC filings, online message boards, and other information sources to assess whether allegedly non-public information was already in the market.

Gains Made/Losses Avoided

In civil actions, an estimation of loss avoided from the sale of shares ahead of negative news is likely to be needed. An event study can permit the estimation of the magnitude of the loss due to the negative news, adjusting for the impact of other events and information. The same approach can be taken for estimation of gains from purchases of shares ahead of the release of positive news. A similar approach may be relevant for sentencing proceedings in US criminal trials.

Trading Patterns

A statistical comparison of the alleged insider trading with the defendants’ historical trading patterns may support or undermine the theory that the defendants were acting on the basis of inside information, rather than for other reasons. NERA economists are experienced in conducting detailed examinations of the trading records of defendants alleged to have engaged in insider trading. We also have experience assessing possible statistical bias introduced by broad monitoring of trading by enforcement agencies.

Price Impact of Trading

Sometimes, a private plaintiff seeking to enter into a corporate transaction alleges that insider trades based on advance knowledge of the as-yet-unannounced deal affected the stock price in such a way as to worsen the deal terms for the plaintiff. An example is a lawsuit involving a bidder in a hostile takeover, who might allege that insider purchasers raised the stock price, causing it to overpay or the target to reject its offer. NERA economists have applied econometric techniques to estimate the price impact of share trades in these situations.