A substantial amount of media attention has recently focused on insider trading of stock. This is the trading of stock in the market based on material nonpublic information. Officers, directors, and large shareholders of corporations usually know such information as well as persons to whom they might give a tip. Any person who acts on such inside information is subject to civil liabilities and criminal penalties. The Securities and Exchange Commission can also bring administrative enforcement actions against such persons.
Investment banking firms have tried to eliminate inside information problems by maintaining a strict separation of the corporate finance departments from the trading departments through the use of a Chinese Wall. Such a Chinese Wall acts as a barrier to the flow of any information from corporate finance personnel to trading personnel.
Inside information is still a serious problem for the investment banking industry. Despite considerable efforts to curb the use of inside information, situations continue to surface in the media regarding such abuses.
CHIARELLA v. UNITED STATES, 445 U.S. 222 (1980)
DIRKS v. SEC, 463 U.S. 646 (1983)
Section 20A of the Securities Exchange Act, added in 1988, provides for penalties for insider trading violations.
Section 21A of the Securities Exchange Act, added in 1988, provides for specific damages for insider trading violations.
SECTION 20A OF THE SECURITIES EXCHANGE ACT OF 1934, 15 U.S.C. § 78t-1 (1988)
SECTION 21A OF THE SECURITIES EXCHANGE ACT OF 1934, 15 U.S.C. § 78u-1 (1988)
Section 1303 of the Federal Securities Code proposes to make it unlawful for an insider to sell or buy a security of the issuer if the insider knows a fact that is not generally available, and includes a definition of an insider to mean the issuer, a director or officer of the issuer, a person controlled by, or under common control with, the issuer, and includes a secondary insider whose relationship or former relationship to the issuer gives or gave access to a fact of special significance about the issuer or the security not generally known, or who learns such a fact from an insider.
UNITED STATES v. O’HAGAN, 521 U.S. 642 (1997)
SELECTED DISCLOSURE AND INSIDER TRADING, Securities Act Release No. 33-7881 (August 15, 2000)
© 2000 Harry Stansbury
 See, e.g., ADAM SMITH, THE ROARING EIGHTIES 214‑20 (1988); MARK STEVENS, THE INSIDERS 11‑22, 117‑21 (1987); R.F. WINANS, TRADING SECRETS 299‑311 (1986); James B. Stewart & Daniel Hertzberg, Secret Dealing Helped Paul Bilzerian Make Takeover Bids Work, Wall St. J., May 19, 1988, at 1.
 See CONNIE BRUCK, THE PREDATOR'S BALL 317-53 (1988); PAUL HOFFMAN, LIONS OF THE EIGHTIES 278-81 (1982); Roberta S. Karmel, Defining Insider Trading, N.Y. L.J., Oct. 15, 1987, at 1.
 See, e.g., JOHN BROOKS, BUSINESS ADVENTURES 118-44 (1969); RON CHERNOW, THE HOUSE OF MORGAN 562-67 (1990); RICHARD W. JENNINGS & HAROLD MARSH, JR., SECURITIES REGULATION 1044-56 (6th ed. 1987); Victor Brundy, Insiders, Outsiders, and Informational Advantages Under the Federal Securities Laws, 93 Harv. L. Rev. 322, 322-39 (1979); Alan M. Weinberger, Preventing Insider Trading Violations: A Survey of Corporate Compliance Programs, 18 Sec. Reg. L.J. 180, 182-85 (1990); James B. Stewart & Daniel Hertzberg, Small Securities Firm Links Drexel's Milken, Goldman's Freeman, Wall St. J., Apr. 6, 1988, at 1.
 See DAVID L. RATNER, SECURITIES REGULATION 614-16 (3d ed. 1986); JAMES B. STEWART, DEN OF THIEVES 234-52 (1991); Stuart J. Kaswell, An Insider's View of the Insider Trading and Securities Fraud Enforcement Act of 1988, 45 Bus. Law. 145, 152-71 (1989); David E. Brodsky, Result In Chestman Sends Mixed Message, Nat'l L.J., Dec. 30, 1991-Jan. 6, 1992, at 21; Linda Himelstein, Cleaning Up After SEC Crackdown, Legal Times, May 28, 1990, at 1; Roberta S. Karmel, A Decade of Greed, N.Y. L.J., Mar. 1, 1990, at 3; Harvey Pitt & Karl Groskaufmanis, 2nd Circuit's Recent Insider-Trading Decision Invites Legislative Fix, Legal Times, May 21, 1990, at 25; David Snouffer, HLS Professors Analyze Boesky Scandal, Harv. L. Rec., Jan. 15, 1987, at 2; see, e.g., United States v. Carpenter, 484 U.S. 19 (1987); Moss v. Morgan Stanley, Inc., 719 F.2d 5 (2d Cir. 1983), cert. denied, sub nom. Moss v. Newman, 465 U.S. 1025 (1984); United States v. Newman, 664 F.2d 12 (2d Cir. 1981), cert. denied, 464 U.S. 863 (1983); Zweig v. Hearst Corp., 594 F.2d 1261 (9th Cir. 1979).
 See LOUIS L. JAFFE & NATHANIEL L. NATHANSON, ADMINISTRATIVE LAW 546-550 (3d ed. 1968).
 See Martin Lipton & Robert B. Mazur, The Chinese Wall Solution to the Conflict Problems of Securities Firms, 50 N.Y.U. L. Rev. 459, 460-64 (1975).
 See JOHN BROOKS, THE TAKEOVER GAME 144-46, 154-55 (1987).
 See RON CHERNOW, THE HOUSE OF MORGAN 632-35 (1990); PAUL HOFFMAN, THE DEALMAKERS 160-76 (1984); JAMES B. STEWART, THE PROSECUTORS 134-77 (1987).
 See DAVID W. EWING, INSIDE THE HARVARD BUSINESS SCHOOL 236 (1990); DOUGLAS FRANTZ, LEVINE & CO. 331‑48 (1987); Donald Baer, A Yuppie Fable, Am. Law., July/Aug. 1986, at 83.
 See LOUIS LOSS & JOEL SELIGMAN, FUNDAMENTALS OF SECURITIES REGULATION 836-37 (3d ed. 1995).
 See LOUIS LOSS & JOEL SELIGMAN, FUNDAMENTALS OF SECURITIES REGULATION 870-73 (3d ed. 1995).
 FEDERAL SECURITIES CODE § 1303 (1980).