The Importance of “The Law of Conservation of Securities”: A Reply to John P. Anderson’s “What’s the Harm in Issuer-Licensed Insider Trading?”

Professor John P. Anderson’s article, What’s the Harm in Issuer-Licensed Insider Trading [1] argues that my “Law of Conservation of Securities” has no moral relevance to the question whether to allow such trading.

A stock market insider trade has two different classes of victims: those injured by the accompanying non-disclosure and those harmed by the transaction itself. The “Law of Conservation of Securities” identifies the individual(s) harmed by the insider trade itself, which is not necessarily the party on the other side.

To illustrate, suppose I sell 100 shares based on material nonpublic adverse information. If I had a pre-existing … Read more

Application of the Federal Mail and Wire Fraud Statutes to Criminal Liability for Stock Market Insider Trading and Tipping

After the Supreme Court’s unanimous decision in Carpenter v. United States,[1] the federal mail and wire fraud statutes became potent prosecutorial weapons against insider trading when the information-owner is the victim. This post examines how criminal liability under the federal mail and wire fraud statutes supplements traditional SEC authority to pursue insider trading. SEC Rules 14e-3 and 10b-5 cover a great deal of stock market insider trading and tipping, but certainly not all. For instance, Rule 14e-3 is confined to the tender offer context.

As illustrated by the recent case of United States v. Newman,[2] the Rule 10b-5 … Read more