Monday, May 30, 2016
This year, my research and writing season has started off with a bang. While grading papers and exams earlier this month, I finished writing one symposium piece and first-round-edited another. Today, I will put the final touches on PowerPoint slides for a presentation I give the second week in June (submission is required today for those) and start working on slides for the presentation I will give Friday.
All of this sets into motion a summer concert conference, Barbri, and symposium tour that (somewhere along the line) got a bit complicated. Here are the cities and dates:
New Orleans, LA - June 2-5
Atlanta, GA - June 10-11
Nashville, TN - June 17
Chicago, IL - June 23-24
Seattle, WA - June 27
I know some of my co-bloggers are joining me along the way. I look forward to seeing them. Each week, I will keep you posted on current events as best I can while managing the research and writing and presentation preparations. The topics of my summer research and teaching run the gamut from insider trading (through by-law drafting, agency, unincorporated business associations, personal property, and benefit corporations) to crowdfunding. A nice round lot.
This coming week, I will be at the Law and Society Association annual conference. My presentation at this conference relates to an early-stage project on U.S. insider trading cases. The title and abstract for the project and the currently envisioned initial paper (which I would, of course, already change in a number of ways) are as follows:
Pillow Talk, The Parent Trap, Sibling Rivalries, Kissing Cousins, and Other Personal Relationships in U.S. Insider Trading Cases
U.S. insider trading law has been newsworthy for many reasons in the past few years. The doctrine is complex and not well understood by the general public. Moreover, the policy roots of insider trading are themselves conflicted and often engage and clash with legal and social norms outside the sphere of securities regulation. This is especially true at the point of overlap between securities trading transactions and personal relationships. How does and should the law of insider trading in the United States treat material nonpublic information shared between or among people who are bound by familial or other personal ties?
The point of contention involves the relevant law’s roots in a required breach of duty. Under current U.S. federal securities law, violations of insider trading prohibitions are predicated on the breach of a fiduciary or fiduciary-like duty of trust and confidence. Family bonds and close personal associations are typically viewed as relationships of trust and confidence. Accordingly, it should not be surprising that close personal relationships between and among relatives, lovers, and friends factor into insider trading cases with some frequency. But just how common are these kinds of cases, how do these personal relationships implicate U.S. insider trading law, and how should U.S. insider trading law treat these cases? This project sets out to answer those questions.
The project takes each question in turn. To assemble the necessary information as a backdrop to the requisite legal analysis, the research element of the project will proceed in two distinct stages. One involves empirical data gathering from public sources and the categorization of that data; the other involves the collection of additional empirical data from personal interviews.
More specifically, the first stage involves the assembly of data on publicly reported insider trading cases involving the sharing of information obtained through familial and personal ties. Although there are shortcomings to this type of data gathering, it is likely to be the best available source of information. The second stage of the project consists of interviews with a sample of the individuals involved in the reported cases. The current plan involves obtaining data about and from cases publicized from January 1, 2001 to December 31, 2015. I propose to present a paper summarizing information from the first stage of the project at the conference.
The paper will begin in Part I by establishing the duty-based doctrine of U.S. insider trading law under Section 10(b) of the Securities Exchange Act of 1934, as amended (“1934 Act”), 15 U.S. C. § 78j(b) (2012), and Rules 10b-5 and 10b5-2 under the 1934 Act, 17 C.F.R. §§ 240.10b-5 & 240.10b5-2 (2015). Theses statutes and regulations, together with related decisional law and existing legal and financial scholarship, will then be used to demonstrate the ways in which family relationships may play a role in unlawful insider trading. From this analysis, the paper will develop a taxonomy of close personal relationship cases. This taxonomy will be used to sort the assembled data.
The paper will next describe in Part II the results of the empirical study conducted as the first stage of the project. Data on publicly reported cases (including the type of enforcement action, the type of insider trading action, the familial or personal relationship(s) at issue based on the allegations, and the role of each relationship member in the alleged insider trading scheme) will be presented. The presentation will relate the data to the taxonomy of cases derived from the doctrinal and literature review in Part I.
In Part III, the paper then will make observations about the assembled data—observations that (among other things) respond to theoretical and doctrinal claims made in existing legal scholarship on insider trading, including those listed below.
Theresa A. Gabaldon, Feminism, Fairness, and Fiduciary Duty in Corporate and Securities Law, 5 Tex. J. Women & L. 1, 7 (1995)
Judith G. Greenberg, Insider Trading and Family Values, 4 Wm. & Mary J. of Women & L. 303 (1998)
Ray J. Grzebielski, Why Martha Stewart Did Not Violate Rule 10b-5: On Tipping, Piggybacking, Front-Running and the Fiduciary Duties of Securities Brokers, 40 Akron L. Rev. 55 (2007)
Joan MacLeod Heminway, Martha Stewart: Insider Trader?, in Insider Trading: Global Developments and Analysis (Paul Ali & Greg N. Gregoriou eds., 2008)
Joan MacLeod Heminway, Save Martha Stewart? Observations About Equal Justice in US Insider Trading Regulation, 12 Tex. J. Women & L. 247 (2003)
Part III of the paper also will employ the empirical findings reported in Part II to both explore and respond to comments made in media reports on insider trading actions based on spousal and intimate partner relationships and communications, commonly termed “pillow talk” cases, including, e.g.:
Karen Gullo & Joshua Gallu, Ex-Deloitte Partner’s Wife Settles SEC Case for $1 Million, Bloomberg.com (Oct. 17, 2011);
David S. Hilzenrath, SEC charges William Marovitz, spouse of Playboy’s Christie Hefner, with insider trading, washingtonpost.com (Aug. 3, 2011);
Peter Lattman, Christie Hefner’s Husband Is Accused of Insider Trading, DealBook, com (Aug. 3, 2011);
Martha Neil, NYSE Insider Trading Cases at Record High in 2008 as ‘Pillow Talk’ Increases, com (Feb. 9, 2009);
Larry Neumeister, Couple pleads guilty to insider trading, com (May 10, 2007);
Holly M. Sanders, Flack Suspended in Pillow-talking Case, Y. Post, Dec. 23, 2008, at 33;
Elizabeth Lesly Stevens, Lives With Polished Veneer Are Snared in S.E.C. Inquiry, com (Dec. 11, 2010); and
Lis Wiehl, Insider Trading: Pillow Talk Reveals Couples’ Dirty Little Secrets, com (Oct. 30, 2007).
Then, Part IV of the paper will identify questions for further study. The paper will specifically call out issues that are best resolved by personal interviews with the subjects of the insider trading actions—the family members and others in personal relationships at the heart of the cases in the studied sample. The explorations in this part of the paper will define and inform the work in the second stage of the project.
Part V of the paper will offer a summary conclusion.
In presenting on this project at this formative stage, I am especially looking for ideas on where my findings may take me--what kinds of things folks are interested in knowing from the data I gather. As the abstract indicates, I am primarily interested in how all of this sheds light on and may effect various aspects of the "duty debate" in insider trading. But I am sure there is a lot more that I can study once I have the baseline information. If you can be at the conference session (Friday, June 3, 2:45 PM - 4:30 PM NOLA Marriott Salon C) to help, great! If you cannot but have ideas, feel free to leave them here or send me an email message.