One of the more contentious current cases also involves a sports mogul, Mark Cuban, the irreverent owner of the Dallas Mavericks basketball team. A few years ago, Cuban was a big shareholder in a Canadian search engine, Mamma.com, which needed to raise cash. The company decided to offer stock to large investors at a discounted price; so in June 2004, according to the S.E.C.’s complaint, the chief executive of Mamma.com called Cuban and asked if he would like to participate. The C.E.O. supposedly prefaced his offer by telling Cuban he was about to impart confidential information. Typically, when such private placements are disclosed, the market price falls — and for that reason, Cuban reacted angrily. At the end of the call, the S.E.C. claims, he snarled: “This means I’m screwed. I can’t sell.” But hours later, he phoned his broker; the next day, he dumped his stake. When the private offering was announced, the stock plunged; Cuban’s early sale saved him $750,000.

Cuban’s behavior was exactly what the insider trading rules should prevent: a mogul profiting from privileged information. But it isn’t clear that the rules do prevent it, at least in this case. The difficult part centers on Cuban’s relationship with the Mamma.com chief executive. According to the S.E.C., at some point during their eight-minute phone call, Cuban acquired a duty not to trade. Cuban has denied that he agreed to keep the information about the offering private; even if he did agree, his lawyers argue, he would still have been free to trade, because he and the C.E.O. were not in a relationship of trust. A district court agreed and dismissed the complaint; on appeal, however, the decision was reversed. The case may now go to trial. Cuban, who has been fined nearly $1.7 million for yelling at basketball officials over the years, has, through his lawyers, cried foul against the S.E.C., which he accuses of “a transparent plan to expand the scope of insider trading liability.” The billionaire is said to be fuming and is considering making a movie about the case when it is done.

What the Cuban case is to the question of “duty,” the S.E.C.’s suit against the consummately ordinary Steffes family is to the definition of “material.” Last year, the S.E.C. charged six family members with tipping or trading on tips in advance of the 2007 leveraged buyout of Florida East Coast Industries. Two defendants were employees: Gary Griffiths, a former trainman who had risen to the executive position of chief mechanical officer; and his trainman nephew, Cliff Steffes. The two supposedly tipped other relatives; collectively, the family purchased $1.6 million in stock and options. What makes the case unusual is that the S.E.C. is not charging that either man was given an explicit tip. Rather, the complaint charges that a procession of pinstriped bankers took minibus tours of company facilities, that the tours gave rise to rumors of a deal among railyard workers and that Griffiths was asked to arrange a private tour for one group. Such circumstantial evidence gave them to “know” that a deal was in the works, or so contends the S.E.C. Thomas Bishop, the lawyer for Griffiths — who, like Steffes, is fighting the charges — says: “This means anybody who works for a company possesses insider information. That’s past the frontier of what the security laws are intending.”

The scale of the family’s investment does suggest that they knew something was up. Yet few Americans would have dreamed they could get into trouble for drawing an inference based on observations at work. And until recently, they might not have. But the Florida East Coast case is the third of its kind in recent years. Whether it will hold up in court is another matter. Khuzami has already had some embarrassing setbacks on insider trading cases — one against a Goldman director that was recently dropped and another, relating to credit-default swaps, that was dismissed by a federal judge. “What the S.E.C. is doing,” says Tom Gorman, a lawyer at Dorsey and Whitney, “is changing the law.”

I met Khuzami on a Friday afternoon, when official Washington was heading out for the weekend. The son of ballroom dancers, he is 54, his hair tinged with gray, and has the kind of résumé you often see in Washington: successful prosecutor in his 30s for the Southern District of New York, then a well-paid lawyer for Deutsche Bank. His seven-year stint in the private sector coincided with the years in which securities regulation was, at least in retrospect, too lax. He returned to government in 2009, with a goal of restoring the S.E.C.’s reputation for vigilance. He has nurtured a close relationship with Preet Bharara, the United States attorney who prosecuted Rajaratnam. The S.E.C. has at times seemed out of its element while handling complex mortgage cases, though lately it has been stepping up activity in that area. But insider trading cases are closer to its ken.

Khuzami scoffed at the notion, proposed to me by defense lawyers, that he is bringing “gray area” cases and noted that many of the S.E.C.’s targets took pains to hide their tracks. In other words, they knew they were doing wrong. “People claim it’s a trap for the unawares because they don’t know where the line is drawn,” Khuzami said. “From where I sit, it’s pretty clear. Insider trading requires intent.” The traders often rationalize that intent, of course, by telling themselves that cheating is normal and not really so serious. A smattering of free-marketers defend insider trading as aiding market efficiency; except in extreme cases, they question whether it should be a crime at all. Unlike with, say, Ponzi schemes, you can’t identify a victim who suffers a loss when someone profits from an illegal tip.

On a little reflection, though, that rationalization doesn’t hold up. The American system of markets may get a lot wrong, but one thing it gets absolutely right is the principle of disclosure. This bedrock of U.S. markets was established in the 1933 Securities Act, and the S.E.C. was created, in 1934, largely to enforce a single proposition: that a corporation issuing securities to the public has to come clean about its financial results and outlook. Disclosure prevents corporations from duping investors. It’s worth noting that disclosure, though a technical term in the context of securities, expresses a broader and distinctly American ideal — that of openness. Governments and most institutions operate better in the sunlight; markets too. Since insiders have a duty of disclosure to people who buy their securities, the courts have ruled that executives who trade in their own stock while failing to disclose confidential information are committing fraud.