Abstract

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Regulating Insider Trading in the Post-Fiduciary Duty Era: Equal Access or Property Rights?


Stephen M. Bainbridge


University of California, Los Angeles (UCLA) - School of Law

May 8, 2012

UCLA School of Law, Law-Econ Research Paper No. 12-08

Abstract:     
This essay was prepared for a forthcoming book on the law and economics of insider trading.

In Chiarella and Dirks, the Supreme Court based insider trading liability on a breach of a disclosure obligations arising out of a fiduciary relationship. The resulting narrowing of the scope of insider trading liability met substantial resistance from the Securities and Exchange Commission (SEC) and the lower courts. Through both regulatory actions and judicial opinions, the SEC and the courts gradually chipped away at the fiduciary duty rationale. In recent years, the trend has accelerated, with several developments having substantially eviscerated the fiduciary duty requirement.

The current unsettled state of insider trading jurisprudence necessitates rethinking the foundational premises of that jurisprudence from first principles. This essay argues that the correct rationale for regulation insider trading is protecting property rights in information. Although that rationale obviously has little to do with the traditional concerns of securities regulation, this article further argues that the SEC has a sufficiently substantial advantage in detecting and prosecuting insider trading that it should retain jurisdiction over the offense.

Number of Pages in PDF File: 34

Keywords: insider trading, fiduciary duty, securities regulation

JEL Classification: K22

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Date posted: May 9, 2012  

Suggested Citation

Bainbridge, Stephen M., Regulating Insider Trading in the Post-Fiduciary Duty Era: Equal Access or Property Rights? (May 8, 2012). UCLA School of Law, Law-Econ Research Paper No. 12-08. Available at SSRN: http://ssrn.com/abstract=2054814

Contact Information

Stephen Mark Bainbridge (Contact Author)
University of California, Los Angeles (UCLA) - School of Law ( email )
385 Charles E. Young Dr. East
Room 1242
Los Angeles, CA 90095-1476
United States
310-206-1599 (Phone)
310-825-6023 (Fax)
HOME PAGE: http://www.professorbainbridge.com
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