Current insider trading law in the United States allows cheaters to win, says Bruce Klaw, assistant professor in the department of business Ethics and Legal Studies at the University of Denver’s Daniels College of Business. According to Klaw, this “fundamentally unfair form of market cheating…produces more societal harm than good to investors, issuers, employers and capital markets as a whole.”
The United States is falling behind in the fight against insider trading. Citing the recent case of United States v. Newman, Klaw argues that “[d]espite being a moral leader and first mover in the fight to secure the integrity of the securities markets by regulating insider trading more than 30 years before any other country, the United States has now fallen significantly behind other developed market economies that have adopted the equal access to information theory.”
With the Supreme Court poised to consider insider trading law for the first time in decades in its upcoming Salman case, Klaw points out that the Court may be constrained by prior precedent, and argues that the solution to the problems of insider trading lies in the passage of a new statute. “To ensure the transparency and health of U.S. securities markets, it is time to finally enact a dedicated insider trading statute that comports with the fundamental dictates of ethics by recognizing the independent wrongfulness of trading on information that the trader knows or should know cannot be accessed by others through their own lawful and independent diligence,” Klaw says.
In his new article published in the William & Mary Business Law Review entitled “Why Now is the Time to Statutorily Ban Insider Trading Under the Equality of Access Theory,” Klaw makes the case for a new statutory provision that defines insider trading under an “equality of access” theory. It is available for free download.
Professor Klaw holds a J.D. from Harvard Law School and a B.A. in Philosophy, Politics and Law from the State University of New York at Binghamton. His fields of research and expertise include white collar and corporate crime, international law, business ethics and public policy.