Title: Statutory Findings and Insider Trading Regulation
Abstract: 50 Vand. L. Rev. 1091 (1997) Insider trading law has been controversial and complicated in large part because the statutory basis of the prohibition of insider trading has seemed unclear. The Supreme Court fueled the controversy with a series of cases that took a literalist approach to the securities statutes but failed to resolve whether the Securities and Commission had the power either to prohibit trading on the basis of misappropriated information or to prohibit all trading by those in possession of material nonpublic information about tender offers. The Supreme Court recently addressed those issues in United States v. O'Hagan, and surprised most commentators by holding that the Commission has broad power to regulate insider trading, including the power to regulate trading on the basis of misappropriated information, and to regulate most informed trading in the context of tender offers. The controversy over insider trading law has centered on several provisions of the Securities Act of 1934, with courts parsing the apparently vague language of those provisions to determine the limits of the SEC's regulatory power. In this Article, Professor Thel examines a statute enacted in 1988 that directly addressed the Commission's power to regulate insider trading. Although this statute has received little attention, it establishes a broad statutory basis for insider trading regulation, in addition to whatever power the Commission was initially granted in the Act. The 1988 statute employed the device of congressional findings to establish the SEC's regulatory authority, and this Article also explores the use of this technique as a device for establishing substantive law. Professor Thel suggests that this technique was a particularly well-suited response to the confusing state of the law that faced lawmakers in 1988. Although using findings to establish law may implicate difficult issues of institutional power and competence, past judicial practice indicates that the courts should honor and implement the 1988 findings. Such respect is particularly appropriate in the context of securities regulation, where the Supreme Court has long justified narrow statutory interpretations by insisting that regardless of the propriety of challenged conduct, it is up to Congress to make law. I. INTRODUCTION Insider trading has presented some of the most unsettled and contentious issues of corporate law. These issues have been particularly difficult because often it has not even been clear whether the law forbids those who possess material nonpublic information to trade securities. Even as commentators have debated whether insider trading ought to be forbidden, the courts have disagreed on the more basic question of when and whether such trading is, in fact, forbidden.l The law governing insider trading has been unclear because the scope of the SEC's authority to regulate insider trading has been unclear. For a while, courts uniformly held that section 10(b) of the Securities Act2 (the Exchange Act) authorizes the SEC to forbid trading by those in possession of misappropriated material nonpublic information, and that section 14(e) of the Act3 authorizes the Commission to forbid trading on the basis of any material nonpublic information about tender offers.4 However, two circuit courts of appeal subsequently rejected this precedent and held that the Commission could not forbid trading on the basis of misappropriated information or prohibit informed trading in the context of tender offers.5 Earlier this year, in United States v. O'Hagan,6 the Supreme Court held that (1) a person who trades securities for personal profit using confidential information misappropriated in breach of a fiduciary duty to the source of the information violates section 10(b) and rule lOb-5,7 and (2) at least insofar as the question had been presented to the Court, the SEC did not exceed its rulemaking authority under section 14(e) when it adopted rule 14e-3,8 which establishes a sort of parity-of-information regime for trading in connection with tender offers. …
Publication Year: 1997
Publication Date: 1997-10-01
Language: en
Type: article
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Cited By Count: 6
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