Privileging Professional Insider Trading
42 Pages Posted: 18 Jul 2016
Date Written: July 15, 2016
This Article explores insider trading law’s increasing focus on personal relationships, and the way in which the law has come to privilege professional over nonprofessional insider trading. The Article discusses how, in an effort to expand insider trading liability, the government has sought to impose legal duties of loyalty and confidentiality on a host of personal relationships not otherwise subject to law – effectively basing civil and criminal penalties on “corruption” in purely personal relationships. At the same time, courts have adopted a business property rationale regarding the use of nonpublic information and declined to prevent companies from disclosing valuable nonpublic information to select market professionals, who may then lawfully trade. The current legal framework thus permits trading on tips by professional investors, while penalizing this same trading by others. This problem is demonstrated by the divergent outcomes in United States v. Newman and Salman v. United States, review of which is currently pending before the Supreme Court. After Newman - which reinforces limits on insider trading liability in the context of professional dealings - personal relationships are likely to be an increasing focus of enforcement. Because of the disparate treatment of trading on tips by professional versus nonprofessional traders, however, this focus does little to advance overall market fairness. This is one reason the Supreme Court should reconsider its earlier insider trading decisions and dial back the expansions in insider trading liability precipitated by those decisions.
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