Insider Trading: How Well Do You Understand the Current Status of the Law?

15 U.S.C. Section 78 u (d)(2) (Supp. 1984).

The United States Senate is currently considering legislation defining insider trading.

Definition of Insider Trading, Hearings before the Subcommittee on Securities of the United States Senate Committee on Banking, Housing, and Urban Affairs, 100th Congress, 1st Session (1987) pp. 93–106, 146–149.

445 U.S. 222 (1980).

463 U.S. 646 (1983).

Cases illustrating this point include: Litton Industries, Inc. v. Lehman Brothers, Kuhn Loeb, Inc., 86 CIV 6447 (JMC) (S.D.N.Y.); Anheuser-Busch v. Thayer, et al., CA 3-85-0794-R (N.D. Texas).

United States v. Newman, 664 F.2d12 (2d Cir. 1981), cert denied, 104 S. Ct. 193 (1983). See also, SEC v. Musella, 678 F. Supp. 1060 (S.D.N.Y. 1988).

108 S. Ct. 316 (1987).

United States v. Carpenter, 791 F.2d 1024 (2nd Cir. 1986).

This definition of misappropriation was articulated by former Chief Justice Burger in Chiarella v. United States, 445 U.S. 222, 245 (1980).

See Tidwell G. , “Here's A Tip—Know the Rules of Insider Trading,” Sloan Management Review (Summer 1987), pp. 93–98.

Dirks v. Securities and Exchange Commission, 463 U.S. 646,662 (1983).

These facts are somewhat analogous to the case of SEC v. Switzer, 590 F. Supp. 756 (W.D. Okla. 1984) where the court found none of the parties guilty of insider trading.

Barry has also not violated Rule 14e-3 (17 C.F.R. Section 240 14 e-3) concerning tender offers because there are no facts showing Barry knows or has reason to know that the information he heard was nonpublic. Rule 14e-3 violations were discussed in “Waste Management Case Reflects Murkiness of Insider-Trading Laws,” Wall Street Journal, February 9, 1988, p. 41.

Since 1981, the Securities and Exchange Commission has brought 136 insider trading cases, as compared with 77 during the previous 47 years.

The difficulty of applying the insider trading rules was described in “Murky Insider-Trading Rules Often Point to Outsiders,” The Washington Post, June 1, 1986, p. F-1. Also see: “What's Legal—And What's Not,” Fortune, December 22, 1986, page 36; “Cloudy Cases: Insider Trading Law Leads to an Array of Interpretations,” Wall Street Journal, February 19, 1987, p. 31; “Demand Rises for Law Defining Insider Trading to Provide More Than a Gut Feeling as a Guide,” Wall Street Journal, March 26, 1987, p. 60.