Insider Trading: Are Insolvent Firms Different?

Abstract

Federal law restricts insider trading. Yet these restrictions operate differently on insolvent or bankrupt firms. The law is less constraining in some respects: federal law extensively regulates the trading of residual claims in solvent firms but not insolvent firms. However, the law is more constraining in other respects: Insider trading law does little to limit debt-trading at solvent firms, but a bankruptcy enmeshes all creditors in a web of insider trading rules. This Article identifies insolvency’s economic and legal influence on insider trading law and then normatively evaluates this transformation.

This Article was written in connection with the Brooklyn Journal of Corporate, Financial, & Commercial Law's 2018 Symposium: The Market for Corporate Control in the Zone of Insolvency.

Keywords: Bankruptcy, Insider Trading, Residual Claimant, Fulcrum, Committee, Comfort Order, Insolvency, Securities