CrimProf Blog

Editor: Kevin Cole
Univ. of San Diego School of Law

Thursday, February 18, 2021

Lustbader on Title 18 Insider Trading

Zachary J. Lustbader (Yale University, Law School, Students) has posted Title 18 Insider Trading (130 Yale Law Journal (forthcoming 2021)) on SSRN. Here is the abstract:
This Note advances a general theory of insider trading liability under the fraud prohibitions of the U.S. Criminal Code. For half a century, federal prosecutors have pursued insider trading convictions by charging defendants with willfully violating the securities laws. But the resulting doctrine has long been viewed as incoherent, inefficient, unpredictable, and unjust.

I articulate and defend a Title 18 insider trading framework independent from the classic tests of Rule 10b-5. Doctrinally, I translate the traditional axes of insider trading liability into the lexicon of federal criminal law. And as a normative matter, I argue that the well-established elements of federal criminal fraud better anchor insider trading’s legal forms to its conceptual foundations. Once detached from the law of Rule 10b-5, a standalone Title 18 model charts a viable path out of insider trading’s doctrinal quagmire — crucially, without requiring further legislative reform. It also rationalizes the Second Circuit’s recent landmark holding in United States v. Blaszczak, which securities scholars have thus far predominantly regarded as an aberration. That case returns soon to the Second Circuit after grant, vacatur, and remand by the Supreme Court.

In the short run, Title 18 distills the offense into embezzlement from a nonconsenting information owner, and it streamlines proof of the elements in criminal insider trading prosecutions. But in the long run, it can meaningfully insulate insider trading doctrine from the specter of prosecutorial and judicial overreach.

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