Securities Law Prof Blog

Anderson on Insider Trading

John P. Anderson has posted When Does Corporate Criminal Liability for Insider Trading Make Sense? on SSRN with the following abstract:

Corporations are subject to broad criminal liability for the insider trading of their employees. Critics have noted that this results in a harsh irony. “After all,” Professor Jonathan Macey argues, “it is generally the employer who is harmed by the insider trading.” In the same vein, former chairman of the Securities and Exchange Commission (SEC) Harvey L. Pitt and Karen L. Shapiro point out that, “[f]ar from being responsible for their employees’ violations of the law…most of the employers who have had the unfortunate experience of employing [insider traders] are in fact the only true victims, in an otherwise victimless crime.”

It is clear that not all insider trading is victimless, and not all employers of insider traders are innocent. But I am convinced that these critics are correct to point out that the current enforcement regime is absurdly overbroad in that it affords no principled guarantee to corporate victims of insider trading that they will not be indicted for the crimes perpetrated against them.

The law should be reformed to insure that corporations are only held criminally liable where they are guilty of some wrongdoing. Section I of this Article outlines current law in the United States concerning corporate criminal liability in general. Section II then looks at corporate liability for insider trading under the current regime. Section III explains why the current regime is absurdly overbroad and in dire need of reform. Section IV then points the way to some reforms that would render corporate criminal liability for insider trading more rational, efficient, and just.

President-Elect Nominates Jay Clayton as SEC Chair

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New in Print

The following law review articles relating to securities regulation are now available in paper format:

John Armour & Brian Cheffins, Stock Market Prices and the Market for Corporate Control, 2016 U. Ill. L. Rev. 761.

Rutheford B. Campbell Jr, The SEC's Regulation A+: Small Business Goes under the Bus Again, 104 Ky. L.J. 325 (2015-2016).

Doron Narotzki, Dark Pools, High-Frequency Trading and the Financial Transaction Tax: A solution or Complication?, 64 Drake L. Rev. 797 (2016).

Brooke Sgambati, Note, Using the Martin Act to Bring Fraudulent Practices in Dark Pool Promotion to Light: An Analysis of the Martin Act’s Applicability to Misrepresentations Regarding the Operation of Dark Pools, 49 Colum. J.L. & Soc. Probs. 585 (2016).