Friday, December 15, 2006

The New Insider Trading

Insider trading has always been intriguing for me, since the mid 80's when I was part of the defense team in what became a leading case in the law of insider trading - SEC vs. Materia. The legal gymnastics of the misappropriation theory are interesting, the effects of insider trading are interesting, and the predictive value of volume movements is interesting. Insider trading, the legal, and the illegal, is interesting to me, on a significant number of levels.

Add to that my professional interest in the regulation of hedge funds and investment advisors, and I was very intrigued by a recent post at Professor Bainbridge's Business Associations Blog - "Politicians tipping Lobbyists who tip Hedge Funds."

There are apparently allegations floating around that Capitol Hill lobbyists get tips about pending legislation from legislators, which the lobbyists then sell to hedge fund managers who use the information to trade in the stock of affected companies.

Legal or Illegal? My take is that it is legal, since nothing is "misappropriated" and I am not aware of any confidentiality provisions regarding pending legislation, or any requirement that a politician keep such information secret, which would be the start of the misappropriation analysis.

Professor Bainbridge disagrees, and provides an interesting analysis in his post.
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