A while back, I noted that I had filed an amicus brief with the Supreme Court in Whitman v. United States, a case raising serious questions about the current state of insider trading law.
Justice Scalia joined the rest of the High Court in refusing to hear hedge-fund manager Doug Whitman ’s appeal of his insider-trading conviction. But joined by Justice Clarence Thomas , Justice Scalia made clear he isn’t happy with the way the law is being interpreted.
“A court owes no deference to the prosecution’s interpretation of a criminal law,” wrote Justice Scalia, while raising the related question: “Does a court owe deference to an executive agency’s interpretation of a law that contemplates both criminal and administrative enforcement?”
The Second Circuit Court of Appeals thought a court does owe such deference, and so it sustained Whitman’s conviction based on the Securities and Exchange Commission’s interpretation of insider-trading law. Justice Scalia wrote that he doubts such “pretensions to deference,” and said “the rule of lenity requires interpreters to resolve ambiguity in criminal laws in favor of defendants.”
Scalia's separate statement concludes:
Whitman does not seek review on the issue of deference, and the procedural history of the case in any event makes it a poor setting in which to reach the question. So I agree with the Court that we should deny the petition. But when a petition properly presenting the question comes before us, I will be receptive to granting it.
If and when Scalia does find such a case, he might also encourage the Court to consider whether the incredible vagueness of the current insider trading prohibition violates due process (it does). The Court might also consider the serious federalism issues we raised in Whitman.
Hopefully the case will also give the Court an opportunity to consider the validity of SEC Rule 10b5-2, to which lower courts have unthinkingly, supinely, and asininely given Chevron deference.