ProfessorBainbridge.com

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

New book chapter by yours truly: "Insider Trading Compliance Programs"

Bainbridge, Stephen Mark, Insider Trading Compliance Programs (January 8, 2019). UCLA School of Law, Law-Econ Research Paper No. 19-02. Available at SSRN: https://ssrn.com/abstract=3312430:

This chapter in a forthcoming handbook on corporate compliance provides an overview of corporate insider trading compliance programs. It sets out the basic legal framework of the federal insider trading prohibition. It then reviews the reasons corporations adopt compliance programs. The chapter next reviews the basic elements of an insider trading compliance program. Finally, the chapter examines the special case of Rule 10b5-1 compliance programs.

Keywords: insider trading, compliance

JEL Classification: K22

Andrew Verstein on Insider Trading in Securities of Insolvent Firms

Andrew Verstein is doing some of the most interesting work among junior corporate law scholars. His latest piece on insider trading in securities of insolvent firms is a great example. He's got a summary of his new article available here, which I highly recommend.

Park on "Insider Trading and the Integrity of Mandatory Disclosure"

My friend and UCLAW colleague Jim Park has just posted a new article:

Insider trading regulation has been primarily shaped by two theories. The first argues that unequal access to material information corrupts the integrity of securities markets. The second contends that insider trading primarily undermines the property rights of a corporation. The dominance of the market integrity and property frameworks has obscured an important reason to regulate insider trading – it can undermine the integrity of the disclosure mandated by the securities laws. Such disclosure is meant to benefit all investors and should not be exploited by a few. Insider trading is particularly problematic in a periodic disclosure system where the release of significant information is deliberately delayed so it can be analyzed and verified. This Article argues that protecting the integrity of mandatory disclosure is a compelling reason for insider trading regulation. This disclosure approach suggests clearer limits to the reach of insider trading law and enforcement than the market integrity and property theories.

Park, James J., Insider Trading and the Integrity of Mandatory Disclosure (October 1, 2018). 2018 Wisconsin Law Review (Forthcoming); UCLA School of Law, Law-Econ Research Paper No. 18-12. Available at SSRN: https://ssrn.com/abstract=3258608

Verstein on Insider Trading in the Stocks of Insolvent Corporations

Andrew Verstein writes:

Are insolvent firms different from solvent firms with respect to insider trading law and policy? Formally, the law does not change. But economic realities and non-securities law duties do. As a result, the insider trading landscape changes considerably. The law is more permissive in some ways, and more constraining in others, as troubled instruments trade.

It's a very interesting analysis. And one that I have not thought about before. (Verstein's very good at sniffing out these sort of seemingly obscure problems that turn out to be interesting and important.)

I'm going to have to mull this one over for a while.

Heartland Payment Systems sues ex-CEOs girlfriend for trading on inside information (sort of)

Back in June Reuters reported that:

The U.S. Securities and Exchange Commission on Tuesday charged the former chief executive of Heartland Payment Systems Inc and his romantic partner with insider trading ahead of the payment processor's $4.3 billion takeover by Global Payments Inc .

Robert Carr, Heartland's founder and CEO, was accused of telling Katherine Hanratty in November 2015 that Global Payments had offered to buy Princeton, New Jersey-based Heartland for a premium and giving her a $1 million check with instructions to open a brokerage account and buy $900,000 of Heartland stock.

Hanratty did what Carr asked, and sold her stock for a $250,628 profit in April 2016, four months after the merger was announced, the SEC said in a complaint filed with the federal court in New Haven, Connecticut.

Apparently Hanratty was not acting as a straw man for Carr, but rather was the beneficiary of a tip (quid pro quo in return for sexual favors or maybe just a gift) from Carr, as the SEC complaint alleges:

On November 23, 2015, Hanratty emailed Carr to express her gratitude and stated “for the first time ever I feel a sense of relief knowing that I have some security.” Referring to the $1 million, Hanratty repeated that “I have done exactly what you recommended I do with it and made you the beneficiary of the account.” Carr replied via email that he was glad that she was not so stressed anymore.

So far all of this seems pretty run of the mill. Slam dunk for the SEC is the phrase that comes to mind. And, indeed, Fox reported that Hanratty settled the SEC charges and paid disgorgement of her profits and a $250,000 fine.

But here's where it gets interesting. Bloomberg is now reporting that:

Heartland Payment Systems LLC is suing its former CEO’s girlfriend for making insider trades based on tips he passed on about an upcoming merger. ...

In fact,  Heartland is suing both Hanratty and Carr. Count I of the complaint alleges that Carr breached his Delaware corporate law fiduciary duty by disclosing the information to Hanratty. Count 2 alleges that Hanratty added and abetted Carr's breach in violation of state corporate law.

This is a very unusual suit. It's rare that an issuer sues an employee (even a former employee) for alleged insider trading. Not unheard of, but rare. As Richard Booth explains:

So why is it that issuers seldom seek disgorgement on their own? It is possible that the practice is common and quietly handled, but I doubt it. One obvious reason that issuers do not often sue their own for insider trading is an inherent conflict of interest. It is often the case that the culprits have the power to decide whether the corporation should sue. Still, that does not explain why there are few derivative actions in connection with insider trading. On the other hand, it appears that the number of derivative actions brought in tandem with securities fraud class actions has been increasing in recent years. Another somewhat less obvious reason for the disinclination of issuers to go after inside trading is that it might often amount to an admission that the company failed to disclose material information in a timely fashion and might trigger the filing of a securities fraud class action. Thus, as I have argued elsewhere, the disproportionate threat of securities fraud class actions and their potentially devastating collateral consequences may prevent publicly traded companies from self-policing.

Richard A. Booth, The Missing Link Between Insider Trading and Securities Fraud, 2 J. Bus. & Tech. L. 185, 206 n.104 (2007).

The fact that Heartland had had a change of ownership may be pertinent. The new owners may have had a beef with Carr.

So what will Hearland have to prove to win against Hanratty? “The elements of a claim for aiding and abetting a breach of a fiduciary duty are: (1) the existence of a fiduciary relationship, (2) the fiduciary breached its duty, (3) a defendant, who is not a fiduciary, knowingly participated in a breach, and (4) damages to the plaintiff resulted from the concerted action of the fiduciary and the non-fiduciary.” Gotham Partners, L.P. v. Hallwood Realty Partners, L.P., 817 A.2d 160, 172 (Del. 2002)

As for # 2, what Carr allegedly did was a breach of Delaware fiduciary duty law. Delaware courts have recognized a "a corporate claim for insider trading" based on the duty of loyalty. Pfeiffer v. Toll, 989 A.2d 683, 704 (Del. Ch. 2010), abrogated on other grounds by by Kahn v. Kolberg Kravis Roberts & Co., L.P., 23 A.3d 831 (Del. 2011):

The plaintiff must show that: “1) the corporate fiduciary possessed material, nonpublic company information; and 2) the corporate fiduciary used that information improperly by making trades because she was motivated, in whole or in part, by the substance of that information.”

Kahn v. Kolberg Kravis Roberts & Co., L.P., 23 A.3d 831, 838 (Del. 2011).

The Congressman Chris Collins insider trading indictment: Some interesting (at least to me) angles

CNBC reports:

Rep. Chris Collins, R-N.Y. pleaded not guilty Wednesday afternoon to federal insider trading charges, according to NBC News.

The congressman was arrested earlier in the day on charges that he shared non-public information with family and friends related to Australian biotech company Innate Immunotherapeutics, on which Collins served as a board member.

An indictment released Wednesday alleges that Collins, 68, scrambled to call his son from the White House lawn and share information with him about a failed drug trial, and that his son and others then sold stock based on that tip before the trial results became public.

Collins' son, Cameron Collins, 25, as well as the father of his fiancee, Stephen Zarsky, 66, were also charged, according to the court filing.

(1) This is not the long awaited enforcement action under The Stock Act (about which I have written often). Instead, it appears that Collins is the largest shareholder and a member of the board of directors of Innate. So it's just standard classical insider trading. (See my treatise on insider trading for more information.)

(2) House Of Representatives Rule 25, clause 2, states that a Member may not "serve for compensation as an officer or member of the board of an association, corporation, or other entity." Was Collins serving on an uncompensated basis?

(3) Do the House conflict of interest rules really allow a Member to serve on a committee with oversight jurisdiction over a company for whom s/he is the largest shareholder and/or a board member? if so, why? Seems like a huge conflict of interest.

(4) On what basis is the personal benefit requirement for imposing tipping liability satisfied with respect to Zarsky (I've also written often about that requirement)? In Salman v. US, the Supreme Court recently held that:

Section 10(b) of the Securities Exchange Act of 1934 and the Securities and Exchange Commission’s Rule 10b–5 prohibit undisclosed trading on inside corporate infor- mation by individuals who are under a duty of trust and confidence that prohibits them from secretly using such information for their personal advantage. ...

These persons also may not tip inside information to others for trading. The tippee acquires the tipper’s duty to disclose or abstain from trading if the tippee knows the information was disclosed in breach of the tipper’s duty, and the tippee may commit securities fraud by trading in disregard of that knowledge. In Dirks v. SEC, 463 U. S. 646 (1983), this Court explained that a tippee’s liability for trading on inside information hinges on whether the tip- per breached a fiduciary duty by disclosing the information. A tipper breaches such a fiduciary duty, we held, when the tipper discloses the inside information for a personal benefit. And, we went on to say, a jury can infer a personal benefit—and thus a breach of the tipper’s duty—where the tipper receives something of value in exchange for the tip or “makes a gift of confidential information to a trading relative or friend.” ...

Making a gift of inside information to a relative ... is little different from trading on the information, obtaining the profits, and doling them out to the trading relative. The tipper benefits either way.

So this picks up Collins' tip to his son. But Zarsky is not yet a relative. At most, he is a future potential relative by marriage. There is also the problem that Zarsky is (somewhat of) a remote tippee (ditto re having written about it), which is always problematic.

(5) Socialist (and nominal Democrat) Congressional candidate Alexandria Ocasio-Cortez claims she is being attacked by "the right" to distract people from the Collins indictment. Um, no. She's being attacked because she's a socialist and that's a bad thing to be.

(6) Did Collins et al. learn nothing from the Sam Waksal/Martha Stewart debacle? The SEC and the stock markets are very, very good at picking up major stock transactions by large shareholders, directors, and officers of companies that suffer bad news. As Josh Barro wrote:

Perhaps it is sometimes possible to trade on insider information and have those trades go unnoticed amid a sea of non-insider trades. But if the non-public information you’re trading on is likely to tank the stock price by more than 90%, and your trades are going to make up about 15 times the stock’s typical daily trading volume, and your close associate sits on the company’s board of directors, it is probably not best to assume that your trades will get lost in the shuffle.

I would thus agree with the CNN analyst who said  "It's the dumbest insider trading crime I've ever seen," except for the fact that the Waksal/Stewart case still strikes me as dumber.