Tuesday, September 1, 2020
This is the first installment of a multi-part guest blog presenting some results of the first comprehensive, large-scale, national survey of public attitudes regarding insider trading. My co-authors (Jeremy Kidd and George Mocsary) and I present the survey’s complete results in our forthcoming article, Public Perceptions of Insider Trading. This installment situates the survey amidst the ongoing debate over the goals of the U.S. insider-trading enforcement regime, and current efforts to reform it. Subsequent installments will share some of the survey results and their implications.
U.S. insider-trading law has been mired in controversy for most of its sixty-year history. Many scholars have argued that restrictions on insider trading should never have been adopted because it is victimless and improves market performance. Others claim that insider trading is unfair, imposes a tax on market participation, and undermines the public’s confidence in our capital markets. Some such critics advocate for broader theories of liability along with stiffer penalties.
Arguments on both sides of this controversy regularly appeal to claims that turn crucially on the public’s actual attitudes concerning insider trading. For example, the recently-published Report of the Bharara Task Force on Insider Trading opens with the declaration that “[m]ost agree that there is something fundamentally unfair about [insider trading].” And in United States v. O’Hagan, Justice Ginsburg averred that “investors would hesitate to venture their capital in a market where [insider trading] is unchecked by law.” Such empirical claims (and their contraries) are rarely backed by data. They therefore amount to little more than speculation. With stiff civil fines and up to 20 years of imprisonment at stake, however, these laws should be based on more than guesswork.
My co-authors and I hope to shed new light on this decades-old debate. Our findings come at a crucial time. Congress may be poised to implement a statutory overhaul of our sixty-year old insider trading regime, with the recent passage of the Insider Trading Prohibition Act in the House with a near-unanimous 410-13 vote. We hope that the survey data will inform these efforts and facilitate intelligent reform.
The survey was administered to a census-representative group (across age, gender, race, and other categories) of 1,313 respondents in April 2019, providing a survey-level margin of error of ±3 percent.
The questions addressed a broad swath of topics covering respondents’ attitudes concerning, inter alia, the pervasiveness of insider trading; how knowledge of widespread insider trading would affect market confidence; whether insider trading is morally wrong, should be illegal, or should be punished; and whether they would personally trade on inside information if they had the opportunity. Some of the results are surprising, and reflect a great deal of ambivalence. For example, what does it mean that nearly a fifth of respondents would engage in insider trading even though they believe it is immoral?
The survey also asked a number of scenario-based questions to test respondents’ intuitions concerning insider trading in a variety of contexts from the boardroom to the cocktail party. Finally, the survey looked to test the firmness of respondents’ views by subjecting them to “propaganda” for and against insider trading, and measuring the extent to which such influence changed their views. The results show a significant change in views after exposure to propaganda, suggesting the public’s views on insider trading are not firmly held.
The next installments to this post will detail some of the survey’s results and point to further empirical research that my co-authors and I plan to undertake.