As the SEC struggles in the courts (see Business Roundtable v. SEC and Gupta v. SEC), one area where the Commission has not incurred significant difficulty has been with respect to insider trading cases.
The Commission continues to bring these cases and win them. Moreover, recent actions have involved exam like fact patterns. Some included allegations of a father tipping a son, a chemist in a government agency trading on confidential information, and a husband misappropriating information from a wife. In one instance, the Commission asserted that the defendant "exploited his romantic relationship for a financial windfall." In addition to officers and directors, the SEC has brought actions against participants in expert networks, portfolio managers at hedge funds, attorneys, analysts and even one former baseball player.
In short, insider trading represents an active and high risk area for those involved in the capital markets. Moreover, the law is remarkably complex and requires an understanding of such issues as the existence of a duty of trust and confidence, the need for, and violation of, a fiduciary duty, and the status of third parties as temporary insiders. Moreover, the risk is not only to individuals. Employers can be liable for insider trading if reckless in allowing the behavior to occur.
All of this suggests the need for a resource that can explain these requirements in a straightforward and thorough manner. Insider Trading 3d Edition, Oxford Press, by Professors William K. S. Wang (Hastings) and Marc I. Steinberg (SMU) does exactly that.
The book contains 15 chapters that examine the basics of insider trading under federal law, the causes of action under state law, and everything in between. For example, Chapter 7 comprehensively deals with government enforcement. Chapters 9, 10, and 11 contain clear analyses of Securities Act section 17(a), Rule 14e-3, and mail/wire fraud. Chapter 13 provides a valuable discussion of compliance programs.
The most complete analysis of the theories of insider trading takes place in Chapter 5, where the book undertakes an extensive discussion of classical insider trading (Dirks v. SEC, 463 US 646 (1983)) and misappropriation (United States v. O'Hagan, 521 US 642 (1997)). The chapter examines the type of "relationship" necessary to trigger a prohibition on classical insider trading (including the sometimes sticky issue of independent contractors) or to implicate the misappropriation doctrine (including government employees, doctors, and attorneys).
Chapter 5 discusses whether the personal benefit requirement mandated for classical insider trading also applies in misappropriation cases (pp. 393-94; pp. 469-476) and contains a brief but important discussion of a very difficult issue: Whether donations of stock to charity while in possession of material non-public information amounts to insider trading (pp. 396-397).
The book is a must for anyone who wants to avoid insider trading/tipping liability or otherwise wants to understand this Delphic area of the law.