Insider Trading: An Alternative Equal Access to Information Theory

Abstract

Recent cases in insider trading regulation have revealed some flaws in the current theoretical framework of insider trading used by courts in the United States. This paper proposes an alternative version of the equal access to information theory that courts should use in addition to the classical and misappropriation theories, which prohibit cases of insider trading where there is a breach of a fiduciary duty. This alternative theory would also impose a duty to disclose or abstain on individuals who have material information that is not legally accessible by other shareholders. This paper will begin by giving a brief background of insider trading regulation in the United States, then summarize some of the issues with the courts’ sole use of the classical and misappropriation theories to prosecute insider trading. Finally this paper develops the alternative equal access to information theory, while attempting to address some objections that may be raised against it.