Insiders profit from stock price movements around class action lawsuits.
The article investigates how insiders of companies trade stocks around the time when the companies are sued in class action lawsuits or settle legal disputes. The researchers found that insider trading activity increases significantly before these announcements, suggesting that insiders may be using private information to make extra profits. Managing insiders, like executives, tend to engage in more opportunistic trading than non-managing insiders. Factors like company size, past stock performance, and the Sarbanes-Oxley Act influence the level of insider trading. This study sheds light on potential ethical issues among insiders and the importance of confidential information, even within insider circles.