White collar and securities litigators have long complained that the laws—or lack thereof—dealing with insider trading are a confusing mess.

An eight-lawyer dream team led by Preet Bharara, the former U.S. Attorney for the Southern District of New York, just released a blueprint on how to fix them. 

The 31-page report by the Bharara Task Force on Insider Trading offers a clear overview of why insider trading enforcement "has suffered—and continues to suffer—from uncertainty and ambiguity to a degree not seen in other areas of law." 

The basic problem: There's no statute specifically directed at insider trading. It's a product of judicial law-making, developed through a series of fact-specific court decisions. And they're all over the map. 

But what should an insider trading law look like? That's the question that the task force set out to answer.

Bharara and SEC Commissioner Robert Jackson Jr. (who is leaving the agency on Feb. 14 to return to teaching at New York University School of Law) in October of 2018 co-authored an op-ed in the New York Times, "Insider Trading Laws Haven't Kept Up With the Crooks," where they announced the task force's creation.

Jackson soon stepped back from the project, but Bharara drew on some of the biggest names in the bar to see it through.

The vice-chair of the group is Cleary Gottlieb Steen & Hamilton partner Joon Kim, the former acting U.S. Attorney for the Southern District of New York. He's joined by fellow SDNY alum Katherine Goldstein. Now a partner at Milbank, Goldstein formerly headed the U.S. Attorney's Office's Securities and Commodities Fraud Task Force.

Also on the team is Orrick, Herrington & Sutcliffe partner Melinda Haag, the former U.S. Attorney for the Northern District of California.

Two prominent securities law professors, Columbia Law School's John Coffee, Jr. and Stanford Law School professor Joseph Grundfest, offer the academic perspective. Grundfest also served as an SEC commissioner in the 1980s.

More recently, task force member Joan McKown, now a partner at Jones Day, was chief counsel of the SEC's Division of Enforcement.

Rounding out the team is Senior U.S. District Judge Jed Rakoff of the Southern District of New York. He's penned some of the most notable opinions dealing with insider trading, including United States v. Salman when he was sitting by designation on the U.S. Court of Appeals for the Ninth Circuit.

In an interview, Kim said the group met regularly throughout the year, determined to reach a consensus on all recommendations. "Overall, it was an incredibly positive experience," he said. "I got to think about and spend time with true experts in the field and come up with some proposals in an area of law we all care about."

The task force identified four key principles for new legislation. First, they said, "The language and structure of any statute should aim for clarity and simplicity."

They also said any new law "should focus on material nonpublic information that is 'wrongfully' obtained or communicated, as opposed to focusing exclusively on concepts of 'deception' or 'fraud,' as the current case law does."

In addition, the law "should clearly and explicitly define the knowledge requirement for criminal and civil insider trading enforcement, as well as the knowledge requirement for downstream tippees who receive material nonpublic information and trade on it."

The fourth principle may be the most controversial: Eliminate the "personal benefit" requirement. That is, the need to show that the person disclosing the information got some kind of benefit—monetary or otherwise—in exchange for giving the tip.

In recent years, the task force members note, this element has "generated a disproportionate share of confusion and uncertainty… Investigation and litigation over what constitutes a cognizable personal benefit—even when the breach of a duty is otherwise clear—has taken on outsized importance and generated incongruent results."

 "The necessity of proving 'personal benefit' … unduly narrows the way in which wrongful dissemination of inside information can be actionable," they continued.

But as a defense lawyer, I asked Kim, wouldn't it make it easier to win acquittal for your clients if the personal benefit standard remained?

Kim reminded me that he hasn't always been a defense lawyer. He and his fellow task force members have been on both sides. And in any case, he said, the real value is clarity. "I don't think uncertainty helps anyone. People want to know what they can and can't do."

Congress has shown some interest in enacting insider trading legislation. In December the House passed The Insider Trading Prohibition Act by a vote 410 to 13. The bill is sponsored by Rep. Jim Himes, a Democrat from Connecticut who was a Goldman Sachs vice president before he was elected in 2009.

The Himes Bill mirrors some of the task force recommendations, and in its original version, it eliminated the personal benefit standard. But at the last minute, language was added that retains it, at least in cases where the information was "wrongfully obtained" due to a breach of duty. 

The task force frets that the move "undermines much of the improvement and simplification that the Himes Bill otherwise achieves."

The Senate (which is a bit busy right now) has yet to take up the legislation.