Adam Pritchard and Robert Thompson have an interesting new paper addressing the titular question:
This articles analyzes the Supreme Court’s leading securities cases from 1962 to 1972—Capital Gains, J.I. Case v. Borak, Mills v. Electric Auto-Lite Co., Bankers Life, and Affiliated Ute—relying not just on the published opinions, but also the justices’ internal letters, memos, and conference notes. The Sixties Court did not simply apply the text as enacted by Congress, but instead invoked the securities laws’ purposes as a guide to interpretation. The Court became a partner of Congress in shaping the securities laws, rather than a mere agent. The interpretive space opened by the Court’s invocation of purpose allowed a dramatic expansion in the law of securities fraud. Encouraged by the high court’s dynamic statutory interpretation doctrine, the Second Circuit—the “Mother Court” for securities law—developed new causes of action that transformed both public and private enforcement of the securities laws. The insider trading prohibition found a new home in the flexible confines of Rule 10b-5. Implied private rights of action encouraged class actions to flourish. The growth of fiduciary duty in the 1960s created a blueprint for “federal corporation law.” The Supreme Court’s “counter-revolutionary” turn in the 1970s cut back on purposivism and the doctrinal innovations of the Sixties, but the approaches to insider trading and private rights of action survived, remaining pillars of securities regulation today.
There is much about the paper that is persuasive. As to insider trading, however, my view is that the Second Circuit just made the law up out of whole cloth without regard to either text or Congressional purpose:
The Texas Gulf Sulphur decision was the seminal moment in the creation of the modern federal insider trading prohibition. In the half century since it was decided, however, courts and commentators have overlooked the glaring flaw in the court’s analysis.
In the key part of the opinion, in which the court laid out the equal access standard, the court grossly misrepresented the precedents on which it relied. The court cited two state law opinions that were wholly irrelevant to the problem at hand. It cited two law review articles, but those articles simply do not say what the court claimed they said. Finally, the court made a bald, unsupported statement of Congressional intent that is demonstrably false.
Bainbridge, Stephen M., Equal Access to Information: The Fraud at the Heart of Texas Gulf Sulphur (August 7, 2017). UCLA School of Law, Law-Econ Research Paper No. 17-14. Available at SSRN: https://ssrn.com/abstract=3014977
