The federal mail[1] and wire fraud[2] statutes prohibit the use of the mails and of “wire, radio, or television communication,” respectively, for the purpose of executing any “scheme or artifice to defraud.” The mail and wire fraud statutes protect only tangible property rights, as opposed to intangible rights,[3] but confidential business information is deemed to be property for purposes of those statutes.[4] Accordingly, use of the mails and wire communications to trade on the basis of confidential information belonging to another constitutes the requisite scheme to defraud.[5]
My understanding is that, although mail and wire fraud charges still are often brought against inside traders, this basis of liability became less important once the Supreme Court validated the misappropriation theory under Rule 10b-5. Because the mail and wire fraud theories are based on a misappropriation of confidential information belonging to another, the statutes were used to backstop Rule 10b-5 in misappropriation cases out of concern that courts might invalidate the misappropriation theory.
Am I right about that? Or are there still advantages for prosecutors who include mail and wire fraud charges in an insider trading indictment?
