ProfessorBainbridge.com

Verstein on "The Problem with Insider Giving"

My friend and UCLA colleague Andrew Verstein has a post up at CLS on whether an insider can be held liable for insider trading when he donates stock to a charity while in possession of inside information.

Recommended.

Brainstorming re Remote Teaching

On the assumption that some or all of my teaching will be done remotely in the fall 2020 semester, I've been thinking about how to do it better. Here's some preliminary thoughts and some questions for further reflection. Feedback from recent or current law students especially welcome. (Note that I sent the bulk of this post by email to the students I taught remotely in Advanced Corporation Law last spring and to the students who I taught in person last fall in Mergers & Acquisitions. I figure the former can tell me what needs improvement from a pedagogic style perspective and the latter can anticipate how to adapt that course to the remote setting. After all, why not go to the proverbial horses' mouth?)

Preliminary Notes

• I teach exclusively using lecture. A comprehensive PowerPoint presentation accompanies each lecture, although the text on the slides is a pretty bare-bones outline.
• My remote learning base is my home office, which is equipped with a Mac with built-in camera and microphone. Any software or hardware must be Mac-compatible.
• I am familiar with using Zoom to share my desktop so that students can see me, the PowerPoint presentation, the Zoom chat room, and perhaps one other open window at a time.
• My students uniformly turn off their video and mute their audio, so I cannot see their faces and can only hear them when they unmute to ask a question.
• I will lay down a set of class rules about issues like muting microphones, raising one’s hand, and so on at the start of the semester with periodic reminders.

Questions

• Attendance during the remote learning in the spring 2020 semester was low; about 50%. While part of that may have been attributable to various pandemic-related factors, it is also possible that some students—knowing the sessions were recorded and posted to the law school intraweb—may have decided to view the lectures asynchronously.
• Is that cause for concern?
• Do I need to do anything to make sure the lectures are accessible for students with hearing or visual difficulties?
• One common suggestion I have seen for enlivening remote learning lectures is to have a second speaker break in for a short presentation.
• Would colleagues be willing to do that?
• Good idea?

Learning Goals

• The lighting in my office is very unsatisfactory.
  • Find someone knowledgeable to assess and recommend lighting, camera, and microphone setups.
• Are there alternatives to Zoom?
• Find out if it is possible to connect an iPad to the Mac to use as a whiteboard.
  • If not, is there a pen-based alternative whiteboard application/technology?
• There is data suggesting that the typical college student’s attention span in class is about ten minutes. I recall seeing data—but cannot now find it—suggesting that the typical attention span of university students in remote learning is about 7 minutes.
  • Note that part of the popularity of TED talks may be the 18 minute limit, which ensures they do not tax the participants’ attention span.
  • Find ways of breaking remote lectures into segments of no more than 10 minutes, with some alternative activity in the breaks.
• I have wanted for some time to include some sort of student feedback during a lecture. (I have planned for years to learn how to use clickers in our classrooms and am ashamed to admit I have let it slide.) Pop ungraded quizzes might be a good way of checking student comprehension and also a segment break activity.
  • Having some sort of feedback is especially important because one cannot see the students’ faces and thus cannot assess their attention level.
  • Learn how to use Zoom’s poll function.
    • Can Zoom’s poll function be incorporated into a PowerPoint presentation?
  • Find out if there are alternatives to Zoom’s poll function that might be a superior way of having students “answer” questions.
  • One possibility I am considering is assigning a few students ahead of each class to each give a 5-minute presentation on a topic relevant to the lecture that day.
• How to deal with students learning asynchronously?
• PowerPoint presentations tend to be static.
  • Find out if there is software available that could be used to create animations (easily) and then embed them in a PowerPoint deck (easily)?
  • If so, learn how to use it.

• In my fall class (Mergers & Acquisitions), there is a great deal of attention paid to looking at specific Word documents (such as merger contracts) and parsing them.
• Is there a better way of showing them than Word or a PDF viewer?
• If so, learn how to use it.
• Some websites recommend building in time pre-class for social chatter and community building.
• Our schedule does not currently contemplate allowing that.

Did Congress trade ahead of COVID-19 news?

Goodell, John W. and Huynh, Toan Luu Duc, Did Congress trade ahead? Considering the reaction of US industries to COVID-19 (May 23, 2020). Finance Research Letters, Forthcoming. Available at SSRN: https://ssrn.com/abstract=3608543

During the ongoing COVID-19 pandemic in the US, there has been considerable media attention regarding several US legislators who traded stocks in late January through February 2020. The concern is that these legislators traded in anticipation of COVID-19 having a major impact on the financial markets, while publicly suggesting otherwise. We consider whether these legislator trades were in a time window and of a nature that would be consistent with trading ahead of the market. Towards this end, we assess the reactions of US industries to sudden COVID-related news announcements, concomitantly with an analysis of levels of investor attention to COVID. Results suggest that, at an industry-level, for legislator trading to be “ahead of the market” it needed to have been done prior to February 26, and involving the 15 industries we identify as having abnormal returns, especially medical and pharmaceutical products (positive); restaurants, hotels, and motels (negative); as well as services and utilities. These criteria are met by many of the legislator trades. Our results help to both parameterize concerns about this case of legislator trading; as well as provide insight into the reactions and expectations of investors toward COVID-19.

Mixed Motive Insider Trading

My friend and forthcoming UCLAW colleague Andrew Verstein has posted a really interesting new paper to SSRN:

If you trade securities on the basis of careful research, then you are a brilliant and shrewd investor. If you trade on the basis of a hot tip from your brother-in-law, an investment banker, then you are a criminal. What if you trade for both reasons?

There is no single answer, thanks to a three-way circuit split. Some courts would forgive you according to your lawful trading motives, some would convict you in keeping with your bad motives, and some would hand the issue to the jury. Sometimes called the “awareness/use” debate or the “possession/use” debate, the proper treatment of mixed motive traders has occupied dozens of law review articles over the last thirty years.

This Article demonstrates that courts and scholars have so far followed the wrong reasons to the wrong answers. Instead, this Article takes trader motives seriously, drawing on insights and solutions from the broader jurisprudence of mixed motive. This analysis generates a new legal test and demonstrates the test’s superiority.

Verstein, Andrew, Mixed Motives Insider Trading (March 21, 2020). Iowa Law Review, Vol. 106, 2020. Available at SSRN: https://ssrn.com/abstract=3558540 or http://dx.doi.org/10.2139/ssrn.3558540

Recommended.

Edwards on Shill on Congressional Securities Trading

The other day I noted Greg Shill's new article on Congressional stock trading. Ben Edwards has now posted a much more detailed assessment of Greg's article.

In his essay, Shill takes up the issue from a policy perspective, looking at how we ought to regulate Congressional Securities Trading.  He draws from ordinary securities regulation and suggest pulling over the trading plan approach and short-swing profit prohibition we use for corporate executives.  This approach should help manage ordinary securities transactions by members of Congress and their staff.  He also advocates for limiting Congressional investing to U.S. index funds and treasuries.  This would reduce the incentive to favor one market participant over another. ...

Of course, we'll still face some implementation challenges.  When and how would we require newly-elected and currently-serving officials to liquidate existing portfolios?  What kinds of exceptions would we make for private-company investments where no ready, liquid market exists?  These implementation challenges strike me as mild compared to the benefits.

I'm not so sanguine about the costs of banning securities trading by members of Congress. But I'm definitely on board with the proposals to adapt Rule 10b5-1 and Section 16(b) to the Congressional context.

Greg Shill on Congressional Insider Trading

I got to know Iowa law professor Greg Shill digitally back when I was on Twitter and met him at AALS20. He's a rising star. I really like his new article on Congressional insider trading, a topic longtime readers will recall I have dabbled in myself. 

Shill, Gregory H., Congressional Securities Trading (April 7, 2020). U Iowa Legal Studies Research Paper No. 2020-11. Available at SSRN: https://ssrn.com/abstract=3570314 or http://dx.doi.org/10.2139/ssrn.3570314

In March 2020, it was revealed that several U.S. Senators had cashed in their stocks after receiving intelligence on COVID-19, sparking both outrage and renewed interest in congressional insider trading. The pandemic trades exposed gaps not only in current law, but in scholarship and leading reform proposals. Congressional securities trading (CST) generates unique challenges, such as the risk of policy distortion, as well as more prosaic ones, like the management of benign trading by insiders. The current framework—which centers fiduciary regulation of theft—is poorly matched to both types. Surprisingly, rules from a related context have been overlooked.

Drawing on SEC regulations that govern public company insiders, this Essay proposes a taxonomy of CST, situates the Senators’ conduct within it, and develops a novel, comprehensive prescription to manage it. Like Members of Congress, corporate insiders such as CEOs engage in securities trading despite possessing valuable inside information. The system designed to manage these trades provides a model. Specifically, Rule 10b5-1 plans (which disclose trades ex ante) and the short-swing profits rule of Section 16(b) (which disgorges illicit profits ex post) should be adapted to the congressional context. Both devices emphasize the management of legitimate trades rather than the punishment of criminal ones (which is already accomplished by other rules).

Rules like these would address policy distortion and unjust self-enrichment by Members of Congress. To reduce those risks further, lawmakers should also be restricted from owning any securities other than U.S. index funds and Treasuries. None of these rules would require new legislation or regulation; all can be adopted by chamber rule. A third risk—the unjust enrichment of third parties—is often conflated with the others, but presents distinct tradeoffs and should be taken up separately. SEC rules provide useful precedent here as well.

I'm on board with the idea of adopting both a Rule 10b5-1 plan system for Congress (tweaked so as to prevent the abuses we've seen in the current version of 10b5-1) and the 16(b) analogy.

I'm not convinced by the proposal to restrict lawmakers from owning any securities other than U.S. index funds and Treasuries. I would hate for Congress to be populated only by career politicians. I'd like to see businessmen and women have a fair shot at it. Should a member of Congress who spent twenty years building a business have to sell it to serve? Should the answer to that question turn on whether the business's legal structure involves securities?

And how about Congressional spouses? Should they be banned from owning a corporation? What if their business is running a huge fund?

With those caveats, however, this is a recommended read. it's short, clear, and thoughtful.

Is Senator Richard Burr in particular jeopardy for insider trading?

Securities attorney and pundit Dan McLaughlin opines:

Kelly Loeffler and David Perdue appear to have been unfairly targeted by national and Atlanta media. Dianne Feinstein and Jim Inhofe likewise have reasonable explanations for their reported stock sales, as does Vermont representative Peter Welch. Senator Richard Burr, however, has some serious questions to answer, and has yet to offer a particularly persuasive defense. ...

Congress in 2012 passed the STOCK Act, clarifying that when members of Congress receive confidential nonpublic information that could affect the price of a stock, they are treated as if they were company insiders. That’s important, because insider-trading laws generally only ban people from trading on company secrets if they work for the company or have a relationship that causes them to owe a legal duty to it. While the SEC is typically hesitant to admit it, a random bystander on the street who accidentally overhears a CEO spilling inside information and buys or sells stock as a result is probably not breaking the law. Those in Congress, however, frequently learn market-moving information because they work in government, rather than the companies that information pertains to. The STOCK Act aimed to close that perceived loophole by declaring that members of Congress have their own duty not to trade on what they learn. ...

A key question in insider-trading cases is proving that the person who bought or sold stock actually knew about the inside information, and traded on that basis. Where the insider-trading charge breaks down here is that all of the senators other than Burr say that their stock trades were made by their financial advisers without their input.

It's a good read.

Senators dumping stock and the STOCK Act

JW Verret's article on the STOCK Act got noticed by Trader's Magazine. Kudos.

Lyle Roberts makes the case against the proposed Insider Trading Prohibition Act

Last month the House of Representatives passed the Insider Trading Prohibition Act by a whopping bipartisan 410-13 vote. As Lyle Roberts explains in today's WSJ, it's a bad bill:

The House claims it is merely codifying and clarifying existing law, but ITPA actually turns it on its head. Because insider-trading law is based on antifraud statutes, courts have made clear that a defendant can’t be held liable unless he acted with intent to defraud or had a duty not to use the information for his own benefit. ITPA arguably does away with both of these sensible limitations. ...

If all of this were not enough, ITPA would not even become the exclusive basis for federal insider-trading actions. The Justice Department and the Securities and Exchange Commission would still be able to bring actions under the general antifraud provisions of the federal securities laws. In other words, the government could cherry-pick its preferred law based on the facts of the case. So much for clarity and consistency.

Insider Trading Under Sarbanes-Oxley § 807 and 18 USC § 1348

In my article, Regulating Insider Trading in the Post-Fiduciary Duty Era: Equal Access or Property Rights, in Research Handbook on Insider Trading 80 (Edward Elgar Publishing; Stephen M. Bainbridge ed. 2013), I argued that:

In Chiarella and Dirks, the Supreme Court based insider trading liability on a breach of a disclosure obligations arising out of a fiduciary relationship. The resulting narrowing of the scope of insider trading liability met substantial resistance from the Securities and Exchange Commission (SEC) and the lower courts. Through both regulatory actions and judicial opinions, the SEC and the courts gradually chipped away at the fiduciary duty rationale. In recent years, the trend has accelerated, with several developments having substantially eviscerated the fiduciary duty requirement.

The current unsettled state of insider trading jurisprudence necessitates rethinking the foundational premises of that jurisprudence from first principles. This essay argues that the correct rationale for regulation insider trading is protecting property rights in information. Although that rationale obviously has little to do with the traditional concerns of securities regulation, this article further argues that the SEC has a sufficiently substantial advantage in detecting and prosecuting insider trading that it should retain jurisdiction over the offense.

In the course of that article, I discussed insider trading Under Sarbanes-Oxley § 807 and 18 USC § 1348:

Section 807 of the Sarbanes-Oxley Act added a new § 1348 to the US Criminal Code, which provides that:

Whoever knowingly executes, or attempts to execute, a scheme or artifice—

(1) to defraud any person in connection with any security of an issuer with a class of securities registered under section 12 of the Securities Exchange Act of 1934 or that is required to file reports under section 15(d) of the Securities Exchange Act of 1934; or

(2) to obtain, by means of false or fraudulent pretenses, representations, or promises, any money or property in connection with the purchase or sale of any security of an issuer with a class of securities registered under section 12 of the Securities Exchange Act of 1934  or that is required to file reports under section 15(d) of the Securities Exchange Act of 1934

shall be fined under this title, or imprisoned not more than 25 years, or both.[1]

Neither the text nor its sparse legislative history shed much light on what Congress intended it to do. About all one can say for sure is that Congress intended to significantly increase the penalties in securities fraud cases and to make it easier for prosecutors to prove such cases by eliminating the so-called “technical elements” of existing provisions such as § 10(b) and Rule 10b-5.[2] Is Powell’s fiduciary duty requirement such a technical element?

In US v. Mahaffy,[3] defendant stockbrokers tipped nonpublic information to defendant day traders in return for cash. The case could and should have been prosecuted under the misappropriation theory.  In Mahaffy, however, the prosecutors charged the defendants with violating § 1348. In upholding the charge as a proper one, the district court did not require the prosecution to prove that the tippers had breached a duty of confidence arising out of a fiduciary relationship owed either to the source of the relationship or to the persons with whom the tippees traded. Indeed, of the Supreme Court trilogy, the district court mentioned only O’Hagan and only in passing.[4]

“The Mahaffy decision [thus] reflects the first step of a potential sea change in the elements required of the government to prove a criminal insider trading violation.”[5] It casts aside, albeit sub silentio, the need for the prosecution to show a breach of a duty to disclose arising out of a fiduciary relationship or similar relationship of trust and confidence. Instead, by analogizing “§ 1348 to an honest services fraud case,” Mahaffy “requires only a material misrepresentation, not a violation of confidence.”[6] Although the SEC will be unable to avail itself of § 1348 potentially significant gutting of the fiduciary duty requirement, since the SEC lacks power to bring criminal cases, § 1348 thus must nevertheless be counted as having knocked one more brick out of the wall.

Now Karen Woody has posted an article length treatment of Section 807:

Since Sarbanes-Oxley, there has been a sleepy provision of the criminal code that could present an end-around to the morass of insider trading precedents under Rule 10b-5. Under 18 U.S.C. §1348, the government can bring an insider trading case under the more general umbrella of securities fraud, which has scant jurisprudential precedent. In other words, the heavily-litigated personal benefit test found in Dirks may not apply to a charge of insider trading under §1348. The elements required to prove a charge under §1348 are similar to other fraud-based offenses such as mail and wire fraud, health care fraud, and bank fraud. Whether §1348 was intended to apply to insider trading in particular is an open question, and a broader question is whether the jurisprudential interpretation for the elements of the crime of insider trading as defined under Rule 10b-5 should be imported into the judicial interpretation of § 1348. In other words, if the conduct that constitutes criminal insider trading under Rule 10b-5 exists only if the elements of the Dirks test are met, then a §1348 charge for criminal insider trading may create an entirely new scheme and definition of the crime. This Article analyzes the potential of this dual paradigm, and argues that, given the uncertainty and shifting parameters of insider trading prohibitions, application of §1348 to insider trading should be afforded the rule of lenity.

Woody, Karen E., The New Insider Trading (October 1, 2019). Arizona State Law Journal, Forthcoming; Washington & Lee Legal Studies Paper No. 2019-22. Available at SSRN: https://ssrn.com/abstract=3474570 or http://dx.doi.org/10.2139/ssrn.3474570

Recommended reading.

Do female insiders trade differently than male insiders?

Eckbo, B. Espen and Ødegaard, Bernt Arne, Insider Trading and Gender (October 24, 2019). Tuck School of Business Working Paper No. 3475061. Available at SSRN: https://ssrn.com/abstract=3475061 or http://dx.doi.org/10.2139/ssrn.3475061

We provide comprehensive, gender-based estimates of the performance of primary insiders' non-routine trades on the Oslo Stock Exchange. Regardless of gender, the time-series of insider holdings fail to indicate that insiders "buy low and sell high". However, there is evidence that the dramatic increase in the network of female directors following Norway's 2005 board gender-balancing law has increased the market reaction to female insider purchases. Moreover, female insider purchases spike following the market crash in 2008, both absolutely and relative to male insiders, which contradicts the conventional view that females are more risk averse than males.

Huh.

Yours truly cited re validity of disgorgement as relief in cases brought by the SEC

In SEC v. Westport Capital Markets LLC., 2019 WL 4857337 (D. Conn. Sept. 30, 2019), THE SEC "accused Westport Capital Markets, LLC, and its owner Christopher E. McClure of violating the Investment Advisers Act of 1940. Westport and McClure have moved to dismiss the SEC complaint to the extent that it seeks a disgorgement remedy."

The Court declined to decide the motion at present, explaining that:

Deferring decision on whether the Court may enter a disgorgement remedy is appropriate in view of uncertainty about the ... extent the SEC may seek disgorgement for strictly victim restitutionary purposes and whether disgorgement for victim restitutionary purposes may retain an equitable character that distinguishes it from disgorgement for deterrent penalty purposes. 

A further reason to forbear ruling for now on the defendants' motion is the likelihood that precedent on whether the SEC may continue to seek a disgorgement remedy may change or be clarified in the coming months. ...

Now pending before the U.S Supreme Court is a certiorari petition on the issue of “[w]hether the Securities and Exchange Commission may seek and obtain disgorgement from a court as ‘equitable relief’ for a securities law violation even though this Court has determined that such disgorgement is a penalty.” Liu v. SEC, No. 18-1501 (petition for writ of certiorari filed on May 31, 2019); see also Stephen Bainbridge, Kokesh Footnote 3 Notwithstanding: The Future of the Disgorgement Penalty in SEC Cases, 56 WASH. U. J. L. & POL'Y 17 (2018); Daniel B. Listwa & Charles Seidell, Note, Penalties in Equity: Disgorgement After Kokesh v. SEC, 35 Yale J. Reg. 667 (2018).

Granted, it's not much of a cite. But it counts. Now I need to get the Supreme Court to cite the article.

On that score, I was pleased to see that counsel for petitioners in the Liu case cited my article in their brief:

The SEC first successfully obtained disgorgement in SEC v. Texas Gulf Sulphur Co., 312 F. Supp. 77 (S.D.N.Y. 1970), aff’d in part, rev’d and remanded in part on other grounds, 446 F.2d 1301 (2d Cir. 1971). See Stephen M. Bainbridge, Kokesh Footnote Three Notwithstanding: The Future of the Disgorgement Penalty in SEC Cases, 56 Wash. U. J.L. & Pol’y 17, 20- 21 (2018). The Second Circuit affirmed the award, adding that “the SEC may seek other than injunctive relief in order to effectuate the purposes of the Act.” SEC v. Texas Gulf Sulphur Co., 446 F.2d 1301, 1308 (2d Cir. 1971). Even there, however, the court noted that such equitable relief must be “remedial” and thus cannot be “a penalty assessment.” Id.

It'd have been nice if they had cited the arguments I made on the merits, but so be it.

Yours truly cited by Virginia Federal District Court re Whether Disgorgement is a Penalty

U.S. v. Bank, 2:17CR126, 2019 WL 2023734, at *4 (E.D. Va. May 8, 2019)

Kokesh has sparked a debate about whether district courts have the authority at all to impose disgorgement because the Supreme Court appeared to question such authority. See Kokesh, 137 S. Ct. at 1642 n.3 (stating that the court offered “[n]o opinion on whether courts possess authority to order disgorgement in SEC proceedings”); Donna M. Nagy, The Statutory Authority for Court-Ordered Disgorgement in SEC Enforcement Actions, 71 S.M.U. L. Rev. 896, 898 (2018) (explaining how, at oral argument for Kokesh, the Justices questioned the authority to order disgorgement and invited challenges to it by disclaiming, in a footnote of the opinion, that it was not deciding the issue). Those arguing there is no authority for disgorgement suggest that, now that disgorgement has been declared a penalty, it can no longer be within a district court's equitable authority because a court cannot impose penalties when acting in equity. See, e.g., Stephen M. Bainbridge, INSIDER TRADING: Kokesh Footnote Three Notwithstanding: The Future of the Disgorgement Penalty in SEC Cases, 56 Wash. U. J.L. & Pol'y 17, 21-22 (2018). Those arguing that there is authority posit that just because disgorgement is a penalty for one purpose does not mean it is a penalty for all purposes, and that Congress has expressly recognized a court's power to order disgorgement. See, e.g., Nagy, supra, at 901-903. In March of 2019, a bill was introduced in the Senate that would resolve this debate by amending 15 U.S.C. § 78u(d) to expressly grant district courts the authority to order disgorgement. Securities Fraud Enforcement and Investor Compensation Act of 2019, S.799, 116th Cong. (2019).

That said, a district court's authority to order disgorgement is not at issue here. Accordingly, the Court assumes, for the purposes of this motion only, that district courts necessarily have the authority to order disgorgement under the equitable authority granted to them by one of the statutes discussed above. See 15 U.S.C. §§ 77t(b), 77v(a), 78aa, 78u(d) (1).

The cited article is: Bainbridge, Stephen Mark, Kokesh Footnote 3 Notwithstanding: The Future of the Disgorgement Penalty in SEC Cases. 56 Washington University Journal of Law & Policy 17 (2018); UCLA School of Law, Law-Econ Research Paper No. 17-12. Available at SSRN: https://ssrn.com/abstract=2992719

Jeff Skilling released after 12 years in jail

NY Times covers it here. Prior coverage from my blog:

Rethinking Jeff Skilling's conviction

After the financial crisis and the recent insider trading convictions of Raj Rajaratnam and Rajat Gupta, perhaps it is time to reconsider the plight of Jeffrey K. Skilling.... The problem is that the case against the Enron executive was...

Predicting Enron

Back in January, Gordon Smith said he "would not be surprised to see both Ken Lay and Jeff Skilling acquitted, but perhaps the government's case is stronger than I expect." Now Gordon says: "The government's case was pretty much what...

Lea Fastow's Withdrawn Plea

Regular readers will recall that we have been folllowing the misadventures of Andrew Fastow, former CFO at Enron, and his wife Lea. Andrew had agreed to coperate with the feds investigating Jeff Skilling and Ken Lay, provided his wife go...

SOX Whistleblower Provisions

Part of the Enron mythology is that former Enron VP Sherron Watkins blew the whistle on Ken Lay, Jeff Skilling, and their fellow miscreants. In fact, however, so-called “Enron whistle-blower” Sherron Watkins never really blew a whistle. ...

After the financial crisis and the recent insider trading convictions of Raj Rajaratnam and Rajat Gupta, perhaps it is time to reconsider the plight of Jeffrey K. Skilling.... The problem is that the case against the Enron executive was...

Back in January, Gordon Smith said he "would not be surprised to see both Ken Lay and Jeff Skilling acquitted, but perhaps the government's case is stronger than I expect." Now Gordon says: "The government's case was pretty much what...

Regular readers will recall that we have been folllowing the misadventures of Andrew Fastow, former CFO at Enron, and his wife Lea. Andrew had agreed to coperate with the feds investigating Jeff Skilling and Ken Lay, provided his wife go...

Part of the Enron mythology is that former Enron VP Sherron Watkins blew the whistle on Ken Lay, Jeff Skilling, and their fellow miscreants. In fact, however, so-called “Enron whistle-blower” Sherron Watkins never really blew a whistle. ...

Rethinking Jeff Skilling's conviction

After the financial crisis and the recent insider trading convictions of Raj Rajaratnam and Rajat Gupta, perhaps it is time to reconsider the plight of Jeffrey K. Skilling.... The problem is that the case against the Enron executive was...

Back in January, Gordon Smith said he "would not be surprised to see both Ken Lay and Jeff Skilling acquitted, but perhaps the government's case is stronger than I expect." Now Gordon says: "The government's case was pretty much what...

Regular readers will recall that we have been folllowing the misadventures of Andrew Fastow, former CFO at Enron, and his wife Lea. Andrew had agreed to coperate with the feds investigating Jeff Skilling and Ken Lay, provided his wife go...

Part of the Enron mythology is that former Enron VP Sherron Watkins blew the whistle on Ken Lay, Jeff Skilling, and their fellow miscreants. In fact, however, so-called “Enron whistle-blower” Sherron Watkins never really blew a whistle. ...

Another new book chapter by yours truly: "The Law and Economics of Insider Trading 2.0"

Bainbridge, Stephen Mark, The Law and Economics of Insider Trading 2.0. Forthcoming in Encyclopedia of Law and Economics (2nd edition 2020); UCLA School of Law, Law-Econ Research Paper No. 19-01. Available at SSRN: https://ssrn.com/abstract=3312406:

Insider trading is one of the most controversial aspects of securities regulation, even among the law and economics community. One set of scholars favors deregulation of insider trading, allowing corporations to set their own insider trading policies by contract. Another set of law and economics scholars, in contrast, contends that the property right to inside information should be assigned to the corporation and not subject to contractual reassignment. Deregulatory arguments are typically premised on the claims that insider trading promotes market efficiency or that assigning the property right to inside information to managers is an efficient compensation scheme. Public choice analysis is also a staple of the deregulatory literature, arguing that the insider trading prohibition benefits market professionals and managers rather than investors. The argument in favor of regulating insider trading traditionally was based on fairness issues, which predictably have had little traction in the law and economics community. Instead, the economic argument in favor of mandatory insider trading prohibitions has typically rested on some variant of the economics of property rights in information. This is a chapter from the forthcoming Encyclopedia of Law and Economics (2nd edition 2020).

Keywords: Insider trading

JEL Classification: K22, G30, G38