Kathleen Coles, The Dilemma of the Remote Tippee, 41 Gonz. L. Rev. 181 (2006).[PDF] [Westlaw] [LexisNexis]
Commentators have long been intrigued by the public’s fascination with insider trading scandals. Although the public focus on insider trading has historically gone through cycles, the recent and highly publicized wave of corporate malfeasance epitomized by Enron has also included several high profile instances of alleged insider trading, such as the Martha Stewart debacle. Although Martha Stewart’s most notorious problems stemmed from the criminal prosecution arising from her conduct during an investigation by the Securities and Exchange Commission (SEC), the insider trading charges themselves have also been the focus of controversy and have been hotly debated by legal observers. This general controversy and the allegedly flimsy basis for the charges of insider trading have also engaged the interest of the public at large. For example, the “Save Martha” website continues to abound with reader letters and book advertisements about the ins and outs of the insider trading allegations against Stewart. The interest of Joe Q. and Josephine Public in high profile insider trading prosecutions has hence once again been aroused.
It is a premise of this article that Joe Q. and Josephine Public may have a much more direct interest in the future ins and outs of the insider trading regime if the much-vaunted “ownership society” comes to pass and average citizens are dependent on private investment accounts for some or all of the basic retirement funds currently provided to them as a “safety net” by the social security system. If the government retirement safety net is ever removed or narrowed, one would expect that the pressures on Joe and Josephine to invest in securities will intensify – either to fund the private investment accounts or to build supplemental retirement income. Depending on the mix of private accounts and public funds that is eventually allowed or required under any new private account system, one might further anticipate that at least some Joes and Josephines will look to increase their rate of return on investments by undertaking more risk than they should in order to enhance their retirement “nest eggs.” Unfortunately, along with these pressures may also come incentives to take shortcuts to a higher rate of return by trading on “hot tips” or confidential information…. Read More