THE THIN BLACK-ROBED LINE

The economic crisis, whether or not one deems it to be over, will leave its imprint on the courts for a long time to come.  Foreclosures are but one kind of case that have seen an uptick in filing.  Another is prosecutions for insider trading.

At first blush, defining insider trading should not be that difficult.  Someone inside gives someone else that famous “inside information” that no-one else knows, which distorts the markets, and down swoop the feds.

But there is a serious argument that not all trading on non-public (or “inside”) information is illegal, at least from the trader’s or broker’s perspective.  That argument says that if the insider passes the information along for his (or her) own financial gain, and the trader knows this, then the trader is part of an illegal-trading scheme.  Guilty.  On the other hand, traders would not be breaking the law when they garner non-public information over a beer, or in any other way that does not involve the insider profiting from passing the information.  Those brokers are just better at cultivating sources, which is part of their job.

If that view were to prevail, a jury would have to find that the trader knew the insider who passed the information did it to get rich quick.  That is an extra burden of some significance for the prosecution – and a thin back-robed line between innocent and guilty for the accused.  Cases are now percolating through the courts – mostly in the Second Circuit Court of Appeals, whose geographic area of responsibility includes (what else?) Wall Street.