January 4, 2006
Securities Lawyers' Need to Keep Info from Lovers
The SEC has brought civil and criminal insider trading charges against a 34 year old New York securities trader, Lee David Edelman, who allegedly bought shares of an acquisition target. The SEC charges that he acquired the information from his live-in girlfriend, a lawyer at a prominent New York law firm who was working on the acquisition. The SEC did not charge the ex-girlfriend, who told the SEC that she told Edelman about the deal in confidence and expected him to keep the information confidential. If the allegations are true, is she technically liable for insider trading as well as a tipper? It depends on whether one views the "scienter" requirement of Rule 10b-5 to apply to the tip iself (Tipper knew she should not tell) or to the tippee's trading ("Tipper knew the tippee would trade"). Views?
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