Imagine the following scenario: an officer of a large, publicly traded corporation learns certain material, nonpublic and negative information about the health of the company. Knowing that fact, and trying to avoid massive losses on stock holdings, he or she decides to dispose of those holdings before the information in question becomes public. Obviously, selling these holdings is not an option; such a transaction would constitute almost textbook insider trading, opening the corporate officer up to potential civil and criminal liability.
But what about a donative transfer? Under �170(a)(1) of the Internal Revenue Code, the owner of securities may donate them to a charitable organization and, in the process, secure a tax deduction in the full amount of the securities’ then-current value, without having to pay capital gains taxes on the sale. This is normally done for appreciated securities that have been held for at least one year. Would such a donation similarly violate the Securities Exchange Act of 1934?
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