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Congressman Chris Collins was arrested on Aug. 8, 2018, on charges that he engaged in insider trading. The 58-page indictment returned by the grand jury in the United States District Court for the Southern District of New York charged in unusual detail that an Australian biotechnology company, of which Collins was a board member, had learned that a drug which it was hoping to produce for the treatment of multiple sclerosis had totally failed its trial testing. Upon learning that, Collins allegedly contacted his son as well as others to tell them that the drug in question had failed its trial. That information resulted in the immediate sale of the stock of the company, prior to the public announcement of the drug's trial failure. That is alleged to have resulted in the tipees avoiding more than $768,000 in losses. Rep. Collins has been quoted as denying guilt and expressing the expectation that he will be acquitted. We know nothing about the facts of this case other than those set forth in the indictment, and would not and do not intend to express any view of guilt or innocence.

However, this case, as so many others of recent vintage, is based on a number of legal theories including securities fraud in violation of Title 15, United States Code, Sections 78(j)(b) and 78(ff). Also alleged in the indictment is that the securities fraud violated Title 17, Code of Federal Regulations, Sections 240.10b-5. We note that nowhere in the indictment is there a reference to a specific federal statue defining insider trading. That is because no such statute exists, although many legal commentators and scholars have long expressed the view that prosecutions for insider trading would be facilitated if there were a specific statute setting forth the elements of the offense. It has been said that those who prosecute these cases prefer the fact that there is no statutory definition of insider trading, inasmuch as the absence of a statutory definition allows in some respects greater liberality in a trial of such cases than would otherwise be the case if there were a specific statutory definition of the offense.

The most recent case decided by the United States Supreme Court on insider trading was Salman v. United States, 580 U.S. ___ (2016). In that case, Justice Alito, writing for the unanimous court, dispelled the notion held by some federal courts that liability for insider trading could only be properly established if the tipper not only breached the fiduciary duty to maintain confidential information and not disclose it, but also, as a result of disclosing it, received a financial benefit. In some cases, the inability to show that the tipper received such a benefit resulted in an acquittal or a reversal of a conviction on appeal.

The Supreme Court resolved any ambiguity on that issue by holding that insider trading can be properly established even where the tipper does not receive money or property as a result of the breach of a fiduciary duty. Rather, it was held that a personal benefit resulted even from simply making a gift of confidential information to a friend or relative. In other words, a benefit in the form of cash was not required in order for a conviction to obtain.

While Salman resolved this issue, it did not deal with other potential ambiguities that almost inevitably result from the lack of a statutory definition of insider trading. Thus, we take this opportunity to repeat what we have espoused in the past, i.e., that Congress should enact a specific insider trading statute without further delay. There is simply no downside to it, and such statute would obviate a number of proof problems that have plagued the courts in these kinds of cases.