SEC Rule 10B5-2: A Call for Revitalizing the Commission’s Efforts in the War on Insider Trading
It is well known that the Securities and Exchange Commission (“SEC” or the “Commission”) is the administrative agency that regulates insider trading in the United States’ financial markets. 1 It is also well known that insider trading law is notoriously difficult to understand, and even more difficult to apply. 2 It is less well known, however, that the Commission itself adds to this confusion and difficulty through its hesitancy to utilize pleading rules designed to lighten its burden in effecting its insider trading enforcement program (the “Program”). 3 The Program is the Commission’s effort to outlaw trading on material, nonpublic information by corporate insiders and outsiders which harms investors in the United States. 4 Although its goal is clear, the Program is plagued by a combination of poor Congressional guidance, courts that struggle with applying a legal fiction (the insider trading prohibition), and a disjointed Commission. 5 As a result, the prohibition on insider trading continues to be difficult to articulate and enforce. This is a situation detrimental to the Commission, the courts, and the market players—that is, the buyers and sellers of financial securities.