Gun Jumping
Candlefocus EditorIn order to commit gun-jumping, an individual would have to have access to confidential information such as upcoming mergers, new product lines, and major financial statements. This information is such that could significantly affect the stock price of a company; it is information that, if known to all potential investors, would allow them to buy or sell shares in a company at a price different than that which would be available if the non-public information was not available.
In most cases, gun-jumping can be traced back to intentional and deliberate acts by someone who has access to non-public information and then buys or sells shares or other securities based on that information. However, in some cases, the activity might be unintentional and not deemed as a criminal offense. For example, if a person inadvertently says something in public about an upcoming event that turns out to be true and then buys or sells shares in a company accordingly, it might not be considered gun-jumping.
Scuttlebutt Method is another type of stock analysis technique. This technique involves an individual gathering information from unofficial sources to get a better idea of a company's success. While the Scuttlebutt method is not illegal, it can reach into shady territory, as the unofficial and unreliable sources of information may contain material non-public information. As a result, if an individual relies too heavily on the information from unofficial sources, it may be argued the he or she is engaging in gun-jumping.
To safeguard against gun-jumping, firms may choose to have an ‘information barrier’ set up between the individuals with access to non-public information and those without it. Companies must also have policies and procedures in place so that employees who have access to this information do not trade in the securities of the company prior to the public release of the information.
In conclusion, gun-jumping is a serious violation of securities laws and carries with it criminal and civil liabilities. Those who commit the act can be subject to fines, jail time, and other penalties. To prevent engaging in such activities, contact with individuals who have access to material non-public information should be avoided and information barriers should be put in place. Further, firms should have policies and procedures in place to ensure that employees who have access to such information do not use it for their own financial gain at the cost of other investors.