Keywords
Insider Trading, Scienter, Presumption of Use, Securities Fraud, SEC Enforcement, Material Nonpublic Information, Rule 10b-5, Securities Litigation
Abstract
Is it possible to accidentally insider trade? The Supreme Court has held that scienter is a necessary element of all § 10(b) and Rule 10b-5 actions, but the federal appeals courts are split on how the scienter requirement applies to insider trading cases. In a non-insider- trading § 10(b) case, the Supreme Court stated that § 10(b) scienter requires intentional misconduct. Although the Supreme Court has not heard a case specifically about the scienter element in the context of insider trading, those who support a use requirement claim that the § 10(b) scienter element requires the plaintiff to show that the insider used the MNPI in the decision to trade.
Those who support a possession standard reason that possession of MNPI creates an unfair informational advantage, which is sufficient reason to prohibit an insider from trading. They also argue that it is impractical to require a plaintiff to prove a defendant actually used the MNPI in the decision to trade. This Note argues that possession of MNPI should create a rebuttable presumption of use for the purposes of insider trading liability under the § 10(b) and Rule 10b-5 scienter requirement. This standard best balances the Supreme Court’s clarification that fraud under 10(b) includes intentional conduct with the practicality of the knowing possession standard.
Recommended Citation
30 Fordham J. Corp. & Fin. L. 137 (2025).
Included in
Business Law, Public Responsibility, and Ethics Commons, Corporate Finance Commons, Judges Commons, Securities Law Commons, Supreme Court of the United States Commons
