Over a decade ago, in August 2004, I watched the high-profile Martha Stewart insider trading matter play out as federal prosecutors decided not to charge Stewart with the crime of insider trading, the SEC did pursue a civil lawsuit against her, and the rest of the U.S. seemed to scratch its head and wonder what the concept of "insider trading" even meant anymore.
I wrote a column entitled "The Elusive Law of Insider Trading" observing that "the root of the problem with the 'insider trading laws' is that there really aren't any," which had led to a situation where understanding the rules was "out of the grasp of mere mortals." I highlighted several cases, including the Barry Switzer case, that showed that "although we may feel that we will know insider trading when we see it, case after case shows that this simply is not so." I concluded that
It can be argued that the continued vagueness of the insider trading laws serves the useful purpose of deterring all trading based on nonpublic information, whether it is technically "legal" or not. While vague laws may have that desired effect, a fairer and more direct use of the law to achieve society's goals in this area would be for Congress to identify what is legal insider trading and what is not, and to articulate the distinction in a coherent statute.
A decade later, the Second Circuit's decision in U.S. v. Newman has resulted in similar pleas for Congress to, finally, define the law of insider trading. The latest came in an amicus brief filed yesterday in Newman, when Mark Cuban argued that the government’s petition for rehearing or rehearing en banc should be denied because only Congress, not prosecutors, should be able to "expand the reach of insider trading proscriptions."
Cuban argued that "insider trading should be defined in a manner that allows individuals to know with certainty whether a trade is legal or illegal before they engage in the transaction." Despite numerous opportunities to do so going back as far as 1969, however, Congress has been either unwilling or unable to provide such a definition. As such, Cuban stated,
While this Court cannot require Congress to act, it can follow the Supreme Court’s lead by reining in the Government’s attempts to expand the reach of insider trading proscriptions. That is what the Panel already did. The Government’s petition for rehearing or rehearing en banc should therefore be denied.
Will Congress finally define the law of insider trading? Should it? Will I be writing this same post in the year 2025? Please let me know your thoughts on Twitter (@brucecarton).