Defining “Material, Nonpublic”: What Should Constitute Illegal Insider Information?


It has been over fifty years since the United States Securities and
Exchange Commission held that insider trading on material,
nonpublic information is illegal, and despite the passage of the
Insider Trading Sanctions Act in 1984, Insider Trading and
Securities Fraud Enforcement Act in 1988, and the Sarbanes-Oxley
Act of 2002, there is still no clear definition of “material, nonpublic information.” This Article argues that the ambiguity of what constitutes illegal insider information enables corporate
insiders to engage in profitable transactions without legal consequences. Furthermore, we argue and provide evidence that the necessity of showing a tipper’s personal benefit creates evidentiary difficulties, which, along with the ambiguity of “material, nonpublic information,” has made the recent increased penalties against insider traders ineffective. In response, this Article proposes a new evidentiary standard that is simple, easy to implement, and difficult to circumvent by insiders.


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Fordham Journal of Corporate & Financial Law