Hi y’all —
Welcome to the first-ever Dollar Scholar rerun! I realized recently that not everyone has been subscribed for all 260 issues, so I want to start occasionally surfacing some of my favorite newsletters from the past. I've been so busy with election coverage that I thought today would be a perfect opportunity to try it.
If you've read these pieces before, I'm sorry (can I get away with saying they get better with time, like a fine wine?). If you haven't, this should be cool.
Let me take you back in time to Issue #61, which went out on Sept. 16, 2020. Here we go…
A year ago, I walked into a birthday party at a shuffleboard-themed bar in Brooklyn and met a man who would change my life.
No, we didn’t fall in love. (I am very single, please help.) In reality, the man and I had a brief conversation that caused me to develop an intense fear of going to jail for insider trading.
The details are hazy, but here’s what I remember. While making small talk over drinks, I said I wrote for Money. He responded that he, coincidentally, worked for an investment bank. And then he started telling me how easy it is to get arrested for insider trading.
“We had to do a looong training at work about all the ways we could potentially be insider training,” he said, shrugging. “But I’m sure you know all about this, working at Money.”
As I stood there nodding, I was freaking out inside. Was I at risk? Was it actually that simple? It’s not like I would insider-trade on purpose — aside from the whole “against the law” thing, my journalist friends aren’t exactly bursting with top-secret stock tips — but this dude suggested it’s common to do accidentally.
Should I be worried I’m going to unintentionally participate in insider trading?
I called Joan MacLeod Heminway, a professor at the University of Tennessee College of Law who has studied this stuff for decades, to learn more. The first thing Heminway told me is that the world of insider trading law is “complicated.” Greaaat.
Next came the history lesson. Concern around insider trading in the U.S. dates back to the stock market crash of 1929, when people with insider info got out of the market before everyone else did. The Securities and Exchange Commission was established in the aftermath.
Two federal securities laws passed in the ‘30s presented a simple fix to the insider trading problem. The law made it so any officer, director or significant shareholder of a public company was liable to that firm for profits they got from buying and selling their stock within six months.
Eventually, though, the SEC and prosecutors got “a little tired of other behaviors” not previously laid out in the law, Heminway said. (Basically, other people with nonpublic information were crossing the line — not just officers and directors.) The government began using general fraud protections to enforce against people they believed were acting unfairly. These are “mushy and broad,” Heminway explained, and prohibit deception in any purchase or sale of securities.
“Sounds good, right?” she adds. “The problem is getting courts to say what ‘deception’ means in this context.”
