abstract. Spurred on by the recent Second Circuit decision in United States v. Newman, this Feature examines the proper scope of the prohibition against insider trading under the securities laws. It argues that in some instances the law does not reach far enough, while in other instances the law reaches too far. On the first point, it is a mistake to require the government to show that a tippee who receives inside information supplies any kind of benefit to the insider before the tippee is subject to criminal prosecution. The simple status of the tippee as donee or bad-faith purchaser of improperly released information should suffice.

On the second point, the prohibition against fraud and manipulation contained in Rule 10b-5 should cover only those activities actionable under common-law theories dealing with misrepresentation, nondisclosure, and breach of fiduciary duty. In no way does the language or structure of the provision mandate a level playing field in which all players are entitled to have equal access to all nonpublic information. Accordingly, it is highly doubtful that Rule 10b-5 should apply to so-called misappropriation cases in which individuals improperly use confidential information for their own purposes, as in United States v. O’Hagan. Nor is it wise to create civil liability under Regulation Fair Disclosure (Regulation FD), which may well retard the production of useful information by requiring that it be shared simultaneously with all players. In both Regulation FD and misappropriation cases, private sanctions that regulate the uneven flow of information should suffice to control any abuses, and these sanctions should include the imposition of constructive trust, based on a restitution theory of unjust enrichment, against all tippees who know that they have received misappropriated information. It is much more difficult to decide whether to invoke criminal prosecutions for misappropriation of firm information against analysts who receive, directly or indirectly, information from insiders who disclose that information consistent with company policies intended to lift overall share levels. There is no reason for that question to be decided in a misappropriation context differently from how it is decided in other contexts, most notably that of trade secrets, where the legal response is itself divided.

author. Laurence A. Tisch Professor of Law, New York University School of Law; Peter and Kirsten Bedford Senior Fellow, Hoover Institution; and James Parker Hall Distinguished Service Professor Emeritus and Senior Lecturer, University of Chicago. Robert Miller, Ed Rock, and Joe Grundfest supplied valuable comments on an earlier draft of this paper. The paper also received a thorough vetting at the Law & Economics Workshop at NYU on October 28, 2015. My thanks to the participants for their trenchant criticisms, which I have tried to answer in the revised version of the paper. I would also like to thank Rachel Cohn, Madeline Lansky, and Krista Perry, University of Chicago Law School, Class of 2016; and Julia Haines, University of Chicago Law School, Class of 2017, for their usual excellent research assistance.