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Washington University Journal of Law and Policy


What would the world look like if a public company officer or director, recognizing the value inherent in material nonpublic firm information and intending to benefit people of limited means, gave this valuable information to those less fortunate without the knowledge or consent of the firm and without any expectation of benefit in return? How, if at all, do we desire to regulate that behavior? The officer or director apparently would be in breach of his or her fiduciary duty absent a valid, binding, and enforceable agreement to the contrary. Does that conduct also, however, violate U.S. federal insider trading rules? Should it? This article offers answers to those questions.

Many (if not most) market observers, including some familiar with U.S. insider trading regulation, would classify the conduct of the officer or director, as tipper, as unlawful under insider trading rules. Yet, a strict doctrinal analysis under Section 10(b) of, and Rule 10b-5 under, the Securities Exchange Act of 1934 calls that classification into doubt. This article not only offers an analysis of the posited altruistic gift-to-strangers scenario under existing federal insider trading law, but also presents doctrinal and normative approaches to the insider trading liability question that yield results consonant with the likely majoritarian conclusion that the tipping insider has committed an insider trading violation under Section 10(b) and Rule 10b-5.

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