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US: Study finds mergers riddled with insider trading

By  |  June 17, 2014

A recent paper written by three university professors suggests that up to 26 percent of mergers were accompanied by evidence of insider trading regarding the transaction.

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    Patrick Augustin of McGill University, along with New York University professors Menachem Brenner and Marti . Subrahmayam, studied patterns surrounding the finances of mergers and acquisitions between 1996 and 2012. The authors found that more than one-quarter of those deals showed evidence of insider trading via abnormal movement and volume of stock options.

    Those abnormal patterns were found for both the acquiring company and the target firms.

    According to reports, the Securities and Exchange Commission only investigates an average of four cases a year regarding insider trading. About 109 mergers on average occur every year.

    The study found that the SEC is more likely to focus on foreign M&A deals, deals with high price tags and insider trading involving stocks instead of more sophisticated methods of trading, like options, according to reports.

    The full paper can be read here.

    Full content: CBC

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