No statute defines illegal insider trading. Rather, the law of insider trading is the amalgamation of judicial opinions that have developed in both the civil and criminal context. Accordingly, individuals seeking to conform their conduct to the law cannot understand what is required of them by reading a statute, but instead must interpret a vast body of sometimes inconsistent case law. As recent cases demonstrate, the nature of insider trading liability is in flux, and basic questions remain unanswered.
This uncertainty exists at a time when the Securities and Exchange Commission (SEC) has placed renewed emphasis on such conduct, as evidenced by a rise in insider trading enforcement actions. Insider trading is the most frequent allegation contained in cases the SEC settles with individuals.1 In addition, the SEC has focused heightened attention to the activities of institutional traders and hedge funds2 and has spent significant resources investigating and bringing actions against those who trade on information in advance of mergers and acquisitions or tender offers.3 These trends are not likely to reverse.
Basics of Liability
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