The "Possession vs. Use" Debate in the Context of Securities Trading by Traditional Insiders: Why Silence Can Never Be Golden

Abstract:     
Traditional insiders occupy a very special position in the scheme of federal securities regulation. However, in a misguided quest for a single answer to the possession vs. use debate, courts, commentators, and even the SEC have tended to marginalize the significant differences between traditional insiders and other securities traders who may possess material nonpublic information. In the aftermath of the circuit court decisions in United States v. Smith and Securities and Exchange Commission v. Adler, courts and the SEC should follow a categorical approach in addressing the possession vs. use question, and should recognize that silence can never be golden for a traditional insider who purchases or sells the corporation's stock while in possession of facts that he knows to be both material and nonpublic.

Number of Pages in PDF File: 72

Keywords: insider trading, Rule 10b-5, Securities and Exchange Commission, securities fraud, "possession vs. use"

Accepted Paper Series