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Matt Levine

Supreme Court Leaves Insider-Trading Law Alone

Giving a gift of illegal information is just as bad as charging for it.

The basic idea of insider trading law is that if you work for a company, and you get important secret information about that company in the course of your work, you can't steal that information and use it for your own benefit. If you are the chief executive officer of the company, and you know that earnings will be disastrous, you can't sell your stock. If you are an investment banker working for the company, and you know it is going to be acquired at a big premium, you can't buy its stock. That information belongs to the company and its shareholders, and you have a duty to them, and you would violate that duty if you traded on it for your own benefit.

This isn't particularly about trading. It's about misusing the company's information for your own profit, violating your duty to act in the shareholders' interest. And so you don't have to trade to be guilty of insider trading. Otherwise it would be too easy to get around the law. You could just sell the information to someone else, and he could trade on it, and pay you out of his profits. From the point of view of insider trading law, that's just as bad as if you had traded yourself: Either way, you are violating your duties to the company and its shareholders by misusing their information for your own financial benefit. You've just changed how you get that benefit. So you are still guilty of insider trading. (And so is he, as part of your plot to violate your duties by trading on corporate information.)