To many this will come as a complete surprise, but there is no federal law that explicitly outlaws insider trading. Rather, for decades the SEC and the Department of Justice, with the endorsement of federal judges, have used the general securities fraud statutes to patch together a complex and problematic insider trading common law. After years of criticism, however, that could now be changing. On May 18, the U.S. House of Representatives passed legislation, which, for the first time in history, would explicitly outlaw insider trading in the United States. It is unclear whether the Senate will act to pass this law, which would require bipartisan support. But if so, it would represent a dramatic change for how the government prosecutes insider trading—and a likely increase in enforcement.

Current Legal Landscape of Insider Trading

Congress has never outlawed insider trading. Prosecutors have instead relied on Rule 10b-5 of the Securities and Exchange Act of 1934 to pursue insider trading cases. As a result, insider trading law is largely made by judges.