In the wake of the Second Circuit’s decision in United States v. Newman,1 which reversed two high-profile insider trading convictions, numerous pundits—including two federal judges—have called on Congress to enact legislation defining insider trading.2 Some decry the fact that criminal prosecutions should not be based on violations of judge-created rules. Prosecutors should bring charges based on laws created by the Legislature, they say. Others wring their hands that insider trading law is too vague and does not give fair notice to the prosecutor or the defendant of what is criminalized.

In fact, when correctly understood, insider trading law’s rationale is clear, and its application is predictable. Proscriptions against insider trading are grounded in the common law doctrines of fraud. Fraud doctrines, in turn, are based on fiduciary duty law, requiring that before there can be liability for failing to speak there must be a duty to speak, and before there can be liability for speaking untruthfully, there must be a duty to speak the truth. Newman was correctly decided and did not change this analysis. Rather, the principal source of confusion in insider trading cases has been the courts’ failure to articulate precisely the nature of the fiduciary duty that must be breached before there can be a violation of Title 15.

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