Federalism and Insider Trading

Abstract:     
In United States v. O'Hagan, the Supreme Court held that a lawyer's misappropriation of client information was fraud connected with his subsequent securities transactions and therefore actionable under section 10(b) of the Securities Exchange Act of 1934. This article argues that the decision makes sense only if federal law should protect property rights in information. State law, however, offers better-developed legal rules regarding property rights. Because of state law's greater potential to benefit from jurisdictional competition and legal evolution, state courts and legislators are more likely than federal lawmakers to devise efficient legal rules for protecting private information.

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