Insider Tainting: Strategic Tipping of Material Non-Public Information

Abstract

Insider trading law is meant to be a shield, protecting the market and investors from connected traders, but it can also be a sword. Insofar as we penalize trading on the basis of material non-public information, it becomes possible to share information strategically in order to disable or constrain innocent investors. A hostile takeover can be averted, or a bidding war curtailed, because information recipients must then refrain from trading. This Article offers the first general account of “insider tainting,” an increasingly pervasive phenomenon of weaponizing insider trading law.

Keywords: Insider Trading, Wolf Packs, Activist Hedge Funds, Mergers and Acquisitions, Mark Cuban, Securities Regulation, Hostile Takeovers, Japan