Dec 06, 2016 First Amendment, insider trading, and convictions for gifting insider information to relatives
An insider trading conviction is risked merely for gifting insider information to a close family member, without proof of expecting a financial return. The Supreme Court unanimously confirmed that today. Salman v. United States, ___ U.S. ___ (Dec. 6, 2016). That is because it can be inferred that the insider securities information tipper expects such return benefits as enhanced reputation when the family member tippee trades on the insider information. Thus, criminal defendants in such cases have fewer defenses at their fingertips.
The prohibition against insider trading is based on Section 10(b) of the Securities Exchange Act of 1934 and Securities and Exchange Commission’s Rule 10b–5, under the idea that the integrity of the securities markets and fiduciary duties of those entrusted with insider information are compromised when insider trading takes place in secret.
To what extent do we want to erode free expression and First Amendment protection in order to enable convictions for insider trading? The more free expression gets eroded, the harder it is to get it back.
The United States Securities Exchange Commission seeks to restrict free expression not only through insider trading criminal and civil lawsuits, but also through mandating full disclosure — rather than limited disclosure — of information by securities issuers through Regulation FD/Fair Disclosure.
I of course always favor erring on the side of too much rather than too little free expression protection.