What’s the Harm in Issuer-Licensed Insider Trading?

BY JOHN P. ANDERSON, 69 U. Miami L. Rev. 795 (2015).

Introduction: I have argued elsewhere that insider trading is morally harmless where the issuer approves the trade in advance and has disclosed that it permits such trading pursuant to published guidelines. I have also suggested that reforming the law to permit such issuer-licensed insider trading “would result in a more rational, efficient, and just insider trading enforcement regime.” A common objection to my claim that issuer-licensed insider trading is harmless is that this argument fails to account for Professor William K.S. Wang’s “Law of Conservation of Securities.” According to Professor Wang and others, the Law of Conservation of Securities proves that each act of insider trading inflicts harm on some definite victim, regardless of whether the trade was approved by the issuer.

In what follows, I will show that the Law of the Conservation of Securities is not helpful to a moral analysis of insider trading because it either proves that all profitable trades (or profitable omissions) in advance of a material disclosure are morally impermissible (an absurdity), or it tells us nothing at all about the moral permissibility of such trades. Of course, once the Law of Conservation of Securities is neutralized, other moral criticisms of issuer-licensed insider trading that rely upon this law also fail. Professor Leo Katz’s argument that morality does not permit one to consent to a system that openly allows issuer-licensed insider trading offers one example. I conclude by explaining why Professor Katz’s challenge to issuer-licensed insider trading fails when considered in light of a proper understanding of the Law of Conservation of Securities. But first, I shall briefly summarize my principal arguments for why issuer-licensed insider trading is morally harmless and should not be criminalized. . . . Full Article.

Recommended Citation: John P. Anderson, What’s the Harm in Issuer-Licensed Insider Trading?, 69 U. Miami L. Rev. 795 (2015).

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