In a New York Times opinion piece, SEC Commissioner Robert J. Jackson Jr. and former U.S. Attorney for the Southern District of New York Preet Bharara argued that the U.S.'s insider trading laws are outdated, and that the SEC should use its authority to clarify insider trading law. Mr. Jackson and Mr. Bharara also announced the formation of a task force to propose insider trading reforms.

Mr. Jackson and Mr. Bharara claim that insider trading laws do not effectively address fraud, in part because the activity is not clearly defined. According to Mr. Jackson and Mr. Bharara, the government's reliance on a "Depression-era law" that generally prohibits fraud in securities markets - but that does not mention "insider trading" anywhere in the law - causes uncertainty in insider trading law.

They note two examples in which this "legal haziness" leaves investors and defendants unclear about what actually constitutes insider trading. The first example is where a corporate insider gives nonpublic information to a friend who trades on it. Whether or not this is illegal insider trading depends on a particular judge's view of whether the insider received a personal benefit from the tip. The second example is where a hacker trades on information obtained from a corporate computer system. Such a trade may not be considered illegal insider trading unless the hacker uses "sufficiently 'deceptive' practices" to hack into the system. Mr. Jackson and Mr. Bharara believe that ordinary investors would be surprised to learn of the uncertainty over the misconduct.

The new task force, which will be called the Bharara Task Force on Insider Trading, will consist of eight former regulators, prosecutors, judges, academics and defense lawyers, and will develop proposals to update insider trading law.

Commentary / Kyle Deyoung

Mr. Jackson and Mr. Bharara have added their names to the growing list of legal heavyweights (including Judge Rakoff and Professor Coffee, among others) who argue that it is long past time to revamp our insider trading laws. While most agree that greater clarity regarding what exactly constitutes illegal insider trading would be a good thing, the devil is always in the details. As the longstanding debate over the various proposals for an insider trading statute has shown, it is extremely difficult to draft a definition of insider trading that is not underinclusive, overinclusive, or both. It will be interesting to see what concrete proposals the new task force comes up with, but no one should hold their breath for a major overhaul of insider trading law by the SEC or Congress anytime soon.

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