The Commission learned of the conduct and was appalled, but figuring out why Gintel was prohibited from trading was a challenge. Upon receiving the information and before the information was made public, Gintel caused 21 accounts to sell their Curtiss-Wright shares. The director who provided the information to Gintel also happened to be employed by Cady, Roberts. In 1959, Robert Gintel, a partner at Cady, Roberts & Co., a broker-dealer, learned from a director of Curtiss-Wright Corporation that the company was cutting its dividend. (1961)-The SEC Finds in Section 10(b) a Broad Prohibition Against Trading on Material Nonpublic Information Divining the elements of an insider trading violation from the language or legislative history of Section 10(b), or indeed the legislative history of the entire Securities Exchange Act, is quite the impossible task. Section 10(b) then authorized the Securities and Exchange Commission (“SEC” or “the Commission”) to prohibit or regulate any other “manipulative or deceptive device or contrivance.” Neither section addressed insider trading as such, and nothing in the language or legislative history of Section 10(b) suggests that Congress had insider trading in mind when it adopted Section 10(b).
#Insider trading series
Section 9 of the Securities Exchange Act defined with specificity a number of prohibited forms of manipulation and deception (principally wash sales, matched orders, engaging in a series of transactions with the specific intent of raising or depressing the price of a security, inducing the purchase of securities through misrepresentations or omissions, and spreading false rumors). In 1934, Congress enacted the Securities Exchange Act, the first major federal securities statute to regulate secondary market trading. Insider trading law is one of many examples of Congress providing no meaningful guidance and the courts largely inventing the law. As a result, even after the government’s win in Salman, the government will often have great difficulty prosecuting tippees who are many levels removed from the source of the information. Newman’s (i) requirement that the government prove that the tippee knew (or, in a civil case, at least should have known) that the source tipped the information for the source’s personal benefit, (ii) its limitation on who counts as a “friend” for insider trading purposes, and (iii) its requirement of “an exchange that is objective, consequential, and represents at least a potential gain of a pecuniary or similarly valuable nature” in the case of tips to persons other than close friends and relatives survive Salman, as does the Second Circuit’s expressed concern about the “doctrinal novelty” of the government’s prosecutions of remote tippees. Newman, in both tone and its articulation of the governing principles, reflected exasperation with the government’s pursuit of remote tippees on paper-thin grounds. The Second Circuit’s decision in United States v. In addition, the government’s burden may not be particularly difficult in the case of a tip in exchange for a financial benefit to the tipper or a tip to a close friend or relative who trades.Īs soon as other tippees enter the picture, however, the burden becomes much more difficult for the government. The breach must involve a personal benefit to the insider or “misappropriator.” When insiders or misappropriators trade on material nonpublic information, the Supreme Court’s breach-of-duty requirement will rarely pose an obstacle to liability. We trace the evolution of the law up to and including Salman and discuss five potential defenses that exist even after the Supreme Court’s decision.Īs discussed below, the Supreme Court long ago rejected the government’s equal-access theory of insider trading, and instead required a breach of a duty of trust and confidence to support insider trading liability.
Salman provides an appropriate occasion to describe what Judge Rakoff referred to as the “topsy-turvy” way in which insider trading law has developed.
The Court, however, declined to adopt the expansive theories of insider trading advanced by the government and expressed skepticism about those theories at oral argument. United States, decided on December 6, 2016, the Supreme Court upheld a conviction for criminal violations of insider trading laws.
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