The U.S. Securities and Exchange Commission’s insider-trading enforcement program has recently featured a number of novel cases. In two matters of first impression, the SEC has asserted insider-trading claims based on derivative instruments known as swaps and, in a third, it has based an insider-trading claim solely on an oral confidentiality agreement.
On May 5, the SEC filed its first insider-trading case based on credit default swaps (CDSs). SEC v. Rorech, No. 09-CV-4329 (S.D.N.Y. filed May 5, 2009). CDSs have drawn recent attention for their complexity and opacity, as well as for their perceived contribution to the financial crisis, but their basic definition is simple: A CDS is contract that provides the buyer with a payoff if an underlying credit instrument defaults. They are, in a sense, insurance policies against credit defaults.
