A few years ago, I blogged over on The Mentor Blog about the establishment of a task force led by former SDNY chief Preet Bharara to make recommendations about reforming insider trading law. The task force recently issued its report, which recommends enactment of a new statute setting forth the elements of insider trading. Here’s an excerpt from the executive summary summarizing what the task force thinks that statute should include:
The language and structure of any statute should aim for clarity and simplicity.
– The law should focus on material nonpublic information that is “wrongfully” obtained or communicated, as opposed to focusing exclusively on concepts of “deception” or “fraud,” as the current case law does.
– The “personal benefit” requirement should be eliminated.
– The law should clearly and explicitly define the knowledge requirement for criminal and civil insider trading enforcement, as well as the knowledge requirement for downstream tippees who receive material nonpublic information and trade on it.
The task force’s report includes specific language that it would like to see included in any statute, including this definition of what it means to “wrongfully” obtain MNPI:
“Wrongfully shall mean obtained or communicated in a manner that involves (a) deception, fraud, or misrepresentation, (b) breaches of duties of trust or confidence or breach of an agreement to keep information confidential, express or implied, (c) theft, misappropriation, or embezzlement, or (d) unauthorized access to electronic devices, documents, or information.”
There’s a lot to unpack in this definition, but among other things, the inclusion of language covering the breach of an NDA would address one of the key weaknesses in the SEC’s failed enforcement action against Mark Cuban, while the language in clause (d) would shore up insider trading cases against data hackers, which also face some impediments under existing law.
-John Jenkins, TheCorporateCounsel.net January 29, 2020