Making Up Insider Trading Law as You Go Along
Washington University Journal of Law & Policy (2018)
16 Pages Posted: 6 Oct 2017 Last revised: 10 Oct 2017
Date Written: October 6, 2017
The law of insider trading has developed through a combination of ad hoc judicial decisions and administrative regulations, along with legislative inaction to correct or redirect its application. Although some might fear that traditional notions of due process and fair notice have not been adequately addressed, those concerns have not had an impact. Rather than rational legal development along a relatively clear statutory path, we continue to see that insider trading is for the most part made up as we go along by the courts, including the Supreme Court, and the Securities and Exchange Commission. This is what one should expect for a prohibition that is largely the product of common law development, despite the admonition that there are no federal common law crimes. The law has produced a reasonably stable set of rules that can be applied predictably to most instances of trading on confidential information. The Supreme Court’s decision in Salman v. United States in December 2016 shows that the justices are for the most part satisfied with how the prohibition is administered, even with no overarching theory of what should – or should not – constitute a violation. The very simplicity of the Court’s analysis in Salman belies any apprehension that the justices are bothered by the state of insider trading law, even if some might view the decision as a missed opportunity to rewrite the law. So when you just make it up as you go along, sometimes you can reach a point where those responsible for enforcement are relatively satisfied, with little prospect of significant change in the future.
Keywords: White collar crime; securities regulation, securities fraud; insider trading
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