Insider Trading Bills in the 114th Congress

By David E. Franasiak, Joel G. Oswald, and Hanna Laver

On December 10, 2014, the U.S. Court of Appeals for the Second Circuit reversed the insider trading convictions of two former hedge fund managers. The court held an individual can only be convicted of insider trading for trading on confidential information if he or she knew the original tipper disclosed it in exchange for a personal benefit. The Court denied a request for an en banc rehearing on April 3, 2015. The only remaining option is to appeal to the Supreme Court, but legal analysts assert that is unlikely. A recent U.S. District Court decision applying the Second Circuit ruling requires the SEC meet a tougher standard at trial for what constitutes insider trading. Judge Jed Rakoff also suggested Congress should formally define insider trading, saying “if unlawful insider trading is to be properly deterred, it must be adequately defined.” In light of the December ruling, several bills were introduced in Congress that would modify the Securities Exchange Act of 1934 to strengthen its prohibitions on trading on material or inside information.  


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