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Insider trading certainly seems illegal. People continue to be indicted for it. Congressmen continue to plead guilty to it. Other people remain in jail convicted of it, or, having left jail, just convicted of it. Still others continue to be sued by the SEC for it. So, yea, in spite of the hopes briefly kindled by a 2014 ruling severely limiting its scope and by the soon-to-be-dead Antonin Scalia’s dreams of rendering it not, insider-trading is definitely still illegal.

But, like, how illegal? Or, more to the point, what aspects of insider-trading are illegal? What, essentially, is insider-trading? This definitional issue is a good deal less clear than the, “is any kind of insider-trading illegal” issue. To paraphrase another court ruling, judges just seem to know it when they see it. This has predictably led to some rather disparate interpretations, uneven enforcement, one particular person not really sure if he insider-traded in spite of having pleaded guilty to it, and enough hand-wringing to lead some people to throw their hands in the air and say, “Fuck it! Just let people do whatever they want.”

This is not the view of Rep. Jim Hines (D-Hedge Funds) and 409 of his colleagues on Capitol Hill, who very much believe that insider-trading is and should be illegal, and think that they know what it means, because as congressmen who have not resigned for insider-trading, they get to decide what it means. Assuming Mitch and Don decide to get on board.

Since the 1960s, insider trading has been delineated primarily by court rulings built around a broader statute against securities fraud…. The House bill aims to establish a legal foundation that is less susceptible to change.

It doesn’t require prosecutors to prove that a defendant knew how a piece of inside information was obtained or whether there was a personal benefit paid to anyone in the chain of communication. Instead, the recipient or provider of an improper tip would be liable for insider trading as long as they were “aware, consciously avoided being aware, or recklessly disregarded that such information was wrongfully obtained or communicated.”

The bill also prohibits people with access to material, nonpublic information from tipping off others if it is “reasonably foreseeable” that the recipient will either trade on the information or forward it to others who will.

House Passes Bill Establishing a Clear Definition of Insider Trading [WSJ]


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