Looking at the connection between public corruption and insider trading cases
Last time, we gave a brief update on an insider trading appeal currently before the Supreme Court which deals with the issue of what exactly constitutes a personal benefit, and whether a close personal relationship is sufficient to be considered a personal benefit.
Interestingly, another case currently before the Supreme Court—which involves former Virginia Governor Bob McDonnell, concerns a parallel issue in public corruption prosecutions. That issue is: what exactly constitutes an official action sufficient to violate anti-corruption laws? As at least one commentator has noted, the issues are related since both insider trading and public corruption cases are more or less based on the principles of fraud.
Insider trading is not expressly prohibited in any statute, though it has been looked at as a violation of the Securities and Exchange Act of 1934 and SEC rulings. The basic idea is that corporate insiders owe fiduciary duties to both the corporation and shareholders, which implies the duty to disclose intent to trade or to abstain from engaging in trade based on possession of material non-public information. Engaging in trade based on such information or providing such information to tipee for a personal benefit is the classic definition of insider trading.
Cases of public corruption are, by contrast, are typically prosecuted under statutes more directly dealing with such activity. Both insider trading and public corruption cases, though, involve similar scenarios. In both types of cases, the defendant has a duty to shareholders and to the public, but fails to disclose that he or she provided something of value in exchange for a personal benefit.
In our next post, we’ll continue this discussion and look at the importance of working with experienced legal counsel to build a strong defense in both insider trading and public corruption cases.