The WSJ redefines illegal insider trading

Cite this Article
Larry Ribstein, The WSJ redefines illegal insider trading, Truth on the Market (May 16, 2011),

Today’s WSJ, in an obvious effort to grab readers seeking more insider trading titillation in the wake of the Galleon verdict, has a story about a new supposed scandal — investment banks offering hedge fund traders special access to dealmakers at exclusive lunches in order to get more trading business from the funds.

The article makes the following silly statement:

Under insider-trading laws, it is generally illegal to buy or sell securities based on “material,” or significant, information that isn’t publicly available.

No.  It’s generally legal to trade on non-public information, even if it’s material.  The exception is when the trader knows the information is obtained illegally, as the jury found in the Raj trial.  Indeed, there’s a question why a non-expert would trade in an efficient market on public information that’s presumably already in the price.

The article discusses situations that might present issues under Reg FD, which doesn’t regulate trading but restricts firms from privately disclosing non-public information without then publicly disclosing it.  But there’s no indication of illegal insider trading in connection with this meeting.  Indeed, there’s a question about how much non-public information is being disclosed.

The WSJ article aids the SEC’s project to, as I said recently, turn the molehill of illegal insider trading into a mountain that oppresses efficiency-enhancing trading.  We expect more from a top financial journal.