July 22, 2019

July 19, 2019

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Insider Trading, Newman And Der Prozess

The U.S. Supreme Court’s denial of review in U.S. v. Newman, 773 F.3d 438 (2014) yesterday inspired the following very short tale:

Joseph K. knew that he had done nothing wrong, but, one morning, he was arrested.  Joseph K. asked the officer “why have I been arrested?”  The officer replied “insider trading”.  “What statute is that?” asked Joseph K.  The officer responded “No statute precisely defines the offense”.  “Surely then, there must be a regulation” posited Joseph K.  “There is no such regulation” answered the officer.  Though annoyed by Joseph K.’s insistence on knowing exactly why he had been arrested, the officer explained: “You see, the offense is based on theories – two theories to be precise.  It is only when the courts convict people of insider trading that they reveal the theories under which they have been convicted.  It’s been done this way for quite some time, just ask Mr. O’Hagan.”  Joseph K. now knew what the Fourth Circuit Court of Appeals already knew: “Absent clearly defined rules, investors find themselves the targets of ad hoc decisionmaking or pawns in an overall litigation strategy known only to the SEC.”  United States v. Bryan, 58 F.3d 933, 951 (4th Cir. 1995)

For more on the Supreme Court’s decision, see Professor Stephen Bainbridge’s post: Supreme Court denies cert in US v. Newman insider trading tipping case.

Franz Kafka

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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm

Keith Paul Bishop is a partner in Allen Matkins' Corporate and Securities practice group, and works out of the Orange County office. He represents clients in a wide range of corporate transactions, including public and private securities offerings of debt and equity, mergers and acquisitions, proxy contests and tender offers, corporate governance matters and federal and state securities laws (including the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act), investment adviser, financial services regulation, and California administrative law. He regularly advises clients...