The Wall Street Journal | By: The Editorial Board | September 17, 2017:
An appellate panel rewrites Supreme Court precedent to give free rein to prosecutors.
Prosecutors and regulators like to define insider trading broadly—they claim to know it when they see it. A Second Circuit Court of Appeals panel in 2014 sought to establish a limiting principle, which last month was vitiated in unprecedented fashion by another panel on the same court. This intracircuit squabble is begging for adjudication
Many liberals want to criminalize any trading that exploits a disparity of information regardless of how it was obtained. But such an expansive interpretation of insider trading could ensnare many people who unwittingly receive or disclose nonpublic information—such as stock analysts or anyone with acquaintances who work at public companies.
As the Supreme Court ruled in 1980, there is no “general duty between all participants in market transactions to forgo actions based on material, nonpublic information.”
The High Court sought to establish a limitation on prosecutions in its landmark 1983 Dirks decision, which requires proof that a fiduciary duty was breached in return for a “personal benefit.”
The Court defined such a benefit as a “pecuniary gain or a reputational benefit that will translate into future earnings” or a “gift of confidential information to a trading relative or friend.”
Yet prosecutors have since stretched Dirks to make its limits meaningless…
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