Corporate Insider Trading: New Dimensions In Liability

Abstract

At first glance it may appear that the law which prohibits the use of material non-public information only applies to the technical “insider” (e.g., corporate directors and officers). However, the scope of the prohibition encompasses persons other than technical insiders. Because the statutory language in Section 10 (b) is broad in scope, and for that matter never mentions directly or indirectly the term “insider trading,” the United States Supreme Court will ultimately have to determine to whom the term “insider” can be applied. At the present time there is a conflict between the lower courts and the Securities and Exchange Commission (“SEC”), on the one hand and the U.S. Supreme Court, on the other, in the handling of insider trading cases: the lower courts and the SEC are expanding the scope of liability for insider trading, but this expansion has been rejected by the high court when it has been confronted with such expansion attempts.