From Chiarella to Cuban: The Continuing Evolution of the Law of Insider Trading
2011; The MIT Press; Volume: 16; Issue: 4 Linguagem: Inglês
ISSN
1532-303X
AutoresAnthony Michael Sabino, Michael A. Sabino,
Tópico(s)Securities Regulation and Market Practices
ResumoI. PREFACE What does an old-school financial printer (one from bygone era of ink and printing presses) have in common with a present-day Internet billionaire (one more often seen on ESPN than CNBC)? Both were accused by government of While former defeated charges brought against him in a case which began Supreme Court's modern interpretation of federal insider laws, latter recently suffered a setback at appellate level in form of a remand to district court. By now, legal professionals have likely discerned that first scenario refers to seminal 1980 United States Supreme Court case Chiarella v. United States.^ Sports fans and legal scholars alike probably recognize second scenario as describing SEC v. Cuban? a case brought against flamboyant owner of Dallas Mavericks professional basketball team, which was first dismissed by U.S. District Court for Northern District of Texas and subsequently reinstated by Fifth Circuit Court of Appeals. The disparate outcomes reached in Chiarella and Cuban clearly reflect difficulty federal courts have encountered in formulating a consistent method of interpreting federal insider laws. Federal securities laws broadly proscribe employment of fraudulent or deceptive devices in connection with purchase or sale of securities in public markets.3 trading is a species of such malfeasance and occurs when one uses material, nonpublic information to profit in of stock.4 The titular evolution of law of insider has been spawned by a series of contrasting legal decisions and an abundance of interesting twists and turns. Parts II and III of this Article provide an exposition of statutory underpinnings of insider and a description of fundamentals of federal securities laws. Parts IV through VII then trace development of modern insider jurisprudence, starting with Supreme Court's inaugural holding in Chiarella and then moving across three decades of evolving precedent to recent Cuban decision. Part VIII provides authors' analysis and commentary on current state of insider laws. The Article concludes in Part DC with some observations as to what future holds for law of insider trading. II. INTRODUCTION Insider has always captured public's attention (not to mention watchful eye of Department of Justice and Securities and Exchange Commission (SEC)). In recent decades, we have witnessed such episodes as Ivan Boesky/Michael Milken scandal5 and Yuppie Five prosecutions.6 These occurrences were so engrossing that they gave rise to a myriad of exposes, cinematic epics7, and other fictional works depicting stories of Wall Street gone wrong. Even when insider was not actual charge alleged, such as in Martha Stewart prosecution,8 mere hint of subterfuge involving confidential corporate secrets had effect of setting world on its ear. Recent episodes lend credence to adage that, the more things change, more they stay same. Current events detail charges of insider at well-known hedge funds,9 illegal tips obtained from an employee inside behemoth Microsoft Corporation,10 and even a secretary at Walt Disney Company being arrested for allegedly leaking confidential tips about House of Mouse's stock.11 Therefore, it came as no surprise when notoriety immediately attached to SECs filing of charges against Mark Cuban, a well-known business mogul and sportsman, for allegedly on material, nonpublic information regarding a technology company in which he held a major investment stake.12 III. THE FUNDAMENTALS OF SECTION 10(B) Having established high profile of insider cases, we now turn to first crucial step in our analysis of modern insider framing jurisprudence - an exposition of well-established foundation for brining such cases under our federal securities laws. …
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