In recent years there has been dramatic growth in the hedge fund industry, accompanied by an equally sizable increase in the public notoriety of such funds. Hedge funds currently control a substantial portion of trading in many financial markets and are subject to less federal regulation than nearly any other type of financial entity or institution. The US Securities and Exchange commission (SEC) recently made cases involving insider trading within hedge funds a priority, a change that can be attributed to the perception that there is widespread insider trading in these funds. This note illustrates why the structure of hedge funds makes them prone to instances of insider trading and why the SEC struggles to deal with this problem. Hedge funds are structured to avoid tax consequences and...
In United States v. O'Hagan, the Supreme Court established that there are two complementary theories of insider trading liability, each with a fiduciary principle at its core. Under the "classical" theory, liability is premised on a fiduciary's deceptive silence about material nonpublic information in a securities transaction with corporate shareholders. Under the "misappropriation " theory, liability is premised on a fiduciary's deception of the source of the material nonpublic information used in the securities transaction. This Article analyzes the law of insider trading, with a focus on developments since O'Hagan. Based on a comprehensive review of lower-court decisions, settled enforcement proceedings, and rules promulgated by the Securities and Exchange Commission, it argues that...
Joseph Nacchio, former CEO of Qwest, is currently serving a six-year sentence for insider trading. Nacchio was convicted of insider trading after he exercised his Qwest stock options at the same time he received information that Qwest's 2001 earnings were in danger of falling nearly one billion dollars short of projected revenue estimates. The Tenth Circuit's decision in Nacchio II is problematic for two reasons: first, the court conflated the requirements of Rule 16 disclosures and the Daubert standard for qualifying experts by creating an onerous burden on defendants attempting to admit expert testimony at the early stages of trial. The Tenth Circuit's decisions in the Nacchio line of cases will impact corporate officials who are honestly trying to comply with insider trading laws, an...
NEW YORK - A former board member of Goldman Sachs and Procter & Gamble pleaded not guilty Wednesday to federal charges accusing him of acting as "the illegal eyes and ears in the boardroom" for a friend, a billionaire hedge fund founder sentenced this month to 11 years in prison in the biggest insider trading case in history. The case, built partially on wiretaps used for the first time in insider trading, has offered unprecedented insight into greed at the highest levels of Wall Street. The arrest of Rajat Gupta took it one step higher.
NEW YORK - Raj Rajaratnam, the hedge fund billionaire at the center of the biggest insider-trading case in U.S. history, was sentenced Thursday to 11 years behind bars - the stiffest punishment ever handed out for the crime. His crimes and the scope of his crimes reflect a virus in our business culture that needs to be eradicated," U.S. District Judge Richard J. Holwell said. "Simple justice requires a lengthy sentence.
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