This second of three articles discussing insider trading law considers the options for national legislation defining insider trading. This topic has taken on new life in light of the Democratic Party’s control of the Senate, the U.S. Court of Appeals for the Second Circuit’s decision permitting prosecutors to use a Title 18 statute to prosecute insider trading, and continuing uncertainty in other judicial opinions about the metes and bounds of insider trading. In light of the significant impact a federal law defining insider trading could have on civil and criminal investigations, it is worth examining the history and potential future of reform proposals.

Legislative Reluctance To Define Insider Trading

The legislation underlying modern insider trading prosecutions—§10(b) of the Securities and Exchange Act—was passed in 1934. Franklin D. Roosevelt was President, only a tiny fraction of the population owned any stock, and corporate news and information was widely available through only a few outlets. Neither §10(b), nor the resulting regulations, provided any definition of insider trading. The courts instead developed the law of insider trading on a case-by-case basis.