It has been over fifty years since the United States Securities and Exchange Commission held that insider trading on material, nonpublic information is illegal, and despite the passage of the Insider Trading Sanctions Act in 1984, Insider Trading and Securities Fraud Enforcement Act in 1988, and the Sarbanes-Oxley Act of 2002, there is still no clear definition of “material, nonpublic information.” This Article argues that the ambiguity of what constitutes illegal insider information enables corporate insiders to engage in profitable transactions without legal consequences. Furthermore, we argue and provide evidence that the necessity of showing a tipper’s personal benefit creates evidentiary difficulties, which, along with the ambiguity of “material, nonpublic information,” has made the recent increased penalties against insider traders ineffective. In response, this Article proposes a new evidentiary standard that is simple, easy to implement, and difficult to circumvent by insiders.
Cindy A. Schipani and H. Nejat Seyhun,
Defining "Material, Nonpublic": What Should Constitute Illegal Insider Information?,
21 Fordham J. Corp. & Fin. L. 327
Available at: http://ir.lawnet.fordham.edu/jcfl/vol21/iss2/3