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Inside the Lawyers Studio: Media Coverage on Cases Involving Insider Trading

The Securities and Exchange Commission (SEC) defines illegal insider trading as “…buying or selling a security, in breach of a fiduciary duty or other relationship of trust and confidence, while in possession of material, nonpublic information about the security. Insider trading violations may also include “tipping” such information, securities trading by the person “tipped,” and securities trading by those who misappropriate such information.”

SEC cases on insider trading often have involved allegations against corporate insiders such as its officers and directors, who after learning of material nonpublic information suddenly make a significant purchase or sale of the company’s stock. The common defense by the corporate insider is that the insider information was not a factor in their decision to trade, which was made for other reasons, and in good faith.

A deeper understanding how these factors play out in real cases is on display in two of my television appearances where I was asked to comment on SEC litigation involving major corporations.

I appeared on CNBC to discuss the now infamous prosecution of former Enron CEO Kenneth Lay.  In May 2006 Lay and fellow Enron executive Jeffrey Skilling were convicted of securities fraud and conspiracy, in connection to Enron’ s bankruptcy causing shareholders a loss of  $11 billion. We discussed the case against Lay and his alleged defense that his stock sale was made in good faith.

I took part in a lively discussion on CNBC’s “The Kudlow Report” regarding the allegations against Rajat Gupta, the former Goldman Sachs Group Inc. board member convicted by a jury of insider trading in June and recently sentenced to two years in jail. Gupta was accused of “tipping” insider information to his close friend Raj Rajaratnam, who ran a hedge fund. It was left for me to explain the rationale behind preventing a corporate insider from gaining an unfair advantage over smaller investors. I made the point that for all investors to have confidence in the system we need to insure there is a fair balance between the large investors and the small investors in the information they have when acting in the marketplace.

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