White Collar Crime

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Earlier today, I had the honor of attending the second annual Peter J. Henning Memorial Lecture at Wayne State University Law School.  Mary Jo White, a partner at Debevoise & Plimpton and the former U.S. Attorney for the Southern District of New York and Chair of the U.S. Securities and Exchange Commission, delivered the lecture.  Her topic: “The Psychology of White Collar Crime and How to Combat It.”

Mary Jo is an engaging speaker.  Her talk covered significant ground in a short period of time.  In addressing her chosen topic, she drew from academic and professional sources, including her own experience.

Her focus was on ways to create effective deterrence. She offered three things that work well in that regard: 

  • whistleblower programs, which she praised for their capacity to permit broad and quick enforcement against serious frauds.
    • …

    For those of you interested in watching or listening to the inaugural Peter J. Henning lecture (the subject of my blog post last Monday), you can find the recording here.  Friend-of-the-BLPB Chris Lund was kind enough to send the link along.  As you'll note, Judge Rakoff's remarks (which were introduced by Chris) begin with comments about Peter, his contributions to our field, and his service to the general public.  Judge Rakoff's thoughts in that regard are so well taken.  The whole presentation was such a fitting tribute.

    I hope you all enjoy the lecture as much as I did!

    Henning(Rakoff)

    As I wrote last week, I attended the inaugural Petter J. Henning lecture today at Wayne State University Law School.  The Honorable Jed S. Rakoff offered insightful remarks on the sustainability of fraud: why fraud continues to occur unabated and why fraudsters get away with it.  In short, after citing to data on decreasing rates of crime of other kinds, Judge Rakoff noted that fraud rates have been holding steady.  He posited a number of reasons why fraud persists, as set forth below:

    • Deterrence requires speed and certainty of punishment, and fraud enforcement actions are slow and uncertain.
    • The Anglo-American common law of fraud makes it hard to prosecute.
    • Public enforcement is underfunded.
    • Pressure to generate short-term profits is strong.

    Judge Rakoff also offered–relevant to some of the work that I have done and am doing on friends-and-family insider trading cases–that based on his personal experience, fraud and other white collar criminal misconduct may be motivated by greed, a desire for power or status, psychological issues, etc.  But he noted overall that those who commit business fraud have a well-founded belief that they can get away with their misconduct–and they actually do.  These fraudsters get off the hook, he…

    I am pleased to share with you that the inaugural Peter J. Henning Lecture at Wayne State University Law School will be held next Monday, April 3rd, at 6:00 pm.  The speaker is the Honorable Jed S. Rakoff (United States District Court for the Southern District of New York) who knew Peter and valued his work.  See the flyer below.  Come if you are able.

    As readers may recall, Peter was a mentor and friend.  His work and my work in insider trading law and practice intersected.  I offered some comments on my relationship with him here on the BLPB shortly after his untimely passing last year.  I also shared some thoughts at the 2022 National Business Law Scholars Conference and wrote a short related tribute to Peter forthcoming in the Wayne Law Review.  I will be at the lecture on Monday. 

    I know many of you also have been touched by Peter or his work.  He was a special man who made great contributions in many spheres.  Please note in the flyer below that financial support for the lecture series is being solicited.  I hope that some of you will take advantage of this opportunity to honor Peter…

    Earlier today, friend-of-the-BLPB Andrew Jennings released a podcast in his Business Scholarship Podcast series featuring me talking about my forthcoming piece in the Stetson Business Law Review, "Criminal Insider Trading in Personal Networks."  You may recall me blogging about this piece as part of my report on the 2022 Law and Society Association's 7th Global Meeting on Law and Society this past summer.  The SSRN abstract is as follows:

    This Article describes and comments on criminal insider trading prosecutions brought over an eleven-year period. The core common element among these cases is that they all involve alleged tipper/tippee insider trading or misappropriation insider trading implicating information transfers between or among friends or family members (rather than merely business connections). The ultimate objectives of the Article are to explain and comment on the nature of these criminal friends-and-family insider trading cases and to posit reasons why friends and family become involved in criminal tipping and misappropriation–conduct that puts both the individual friends and family members and the relationships between and among them at risk.

    I am grateful to be in the position of publishing this work in the near future (after a number of years of work on

    …

    image from www.lawandsociety.orgLast night, I happily found myself sitting at a café table above the River Douro in Porto, Portugal (see photo below) as part of a two-day hiatus before the Global Meeting on Law and Society in Lisbon.  I look forward to the conference and the rest of my time in this beautiful country.  Viva Portugal!

    I am participating in a number of programs over the course of the conference as part of CRN 46 (Corporate and Securities Law in Society), a Law and Society Association collaborative research network that started as a female business law prof group that routinely organized programs at the annual conferences of the Law and Society Association.  I am very proud of this heritage.  The group continues to promote and support the scholarship of women and other underrepresented populations in the business law scholarly realm.

    I no doubt will have more to say about the meeting once it has ended and I am back in the United States.  (I also am taking a personal trip to the Catalonia region of Spain before I return to Knoxville.)  But for today, I will offer information about my academic paper presentation at the conference.

    On Saturday, July 16, I…

    In August 2021, the SEC announced that it had charged Matthew Panuwat with insider trading in violation of Section 10(b) of the Securities Exchange Act of 1934. Panuwat was the head of business development at Medivation, a mid-sized biopharmaceutical company when he learned that his company was set to be acquired by Pfizer at a significant premium.

    If Panuwat had purchased Medivation stock in advance of the announcement of the acquisition, it is likely he would have been liable for insider trading under the classical theory. Liability for insider trading under the classical theory arises when a firm issuing stock, its employees, or its other agents strive to benefit from trading (or tipping others who then trade) that firm’s stock based on material nonpublic information. Here the insider (or constructive insider) violates a fiduciary duty to the counterparty to the transaction (the firm’s current or prospective shareholders) by not disclosing the information advantage drawn from the firm’s material nonpublic information in advance of the trade.

    If Panuwat had purchased shares of Pfizer in advance of the announcement, then it is likely he would have been liable under the misappropriation theory. Liability for insider trading under the misappropriation theory arises when…

    Earlier this month, the U.S. Senate Committee on Banking, Housing, and Urban Affairs held a hearing on the Insider Trading Prohibition Act (ITPA), which passed the house with bipartisan support in May of last year. Some prominent scholars, like Professor Stephen Bainbridge, have criticized the ITPA as ambiguous in its text and overbroad in its application, while others, like Professor John Coffee, have expressed concern that it does not go far enough (mostly because the bill retains the “personal benefit” requirement for tipper-tippee liability).

    My own view is that there are some good, bad, and ugly aspects of the bill. Starting with what’s good about the bill:

    • If made law, the ITPA would end what Professor Jeanne L. Schroeder calls the “jurisprudential scandal that insider trading is largely a common law federal offense” by codifying its elements.
    • The ITPA would bring trading on stolen information that is not acquired by deception (e.g., information acquired by breaking into a file cabinet or hacking a computer) within its scope. Such conduct would not incur Section 10b insider trading liability under the current enforcement regime.
    • The ITPA at least purports (more on this below) to only proscribe “wrongful” trading, or trading

    …

    The following comes to us from Professor Mike Guttentag in response to my recent post on his excellent and thought-provoking new article, Avoiding Wasteful Competition: Why Trading on Inside Information Should be Illegal. This is a worhy discussion I look forward to continuing–and I hope others will engage in the comments below. Now, here is Professor Guttentag's response:

    As always, I am honored and impressed by the seriousness and respect with which Professor Anderson approaches my work.  I would, however, take exception to the reasons he offers for rejecting my conclusions.

    The debate about insider trading over the past five decades has suffered from limited evidence of either benefits or harms. Those who have objected to a strict insider trading prohibition have reasonably asked: what evidence is there that the harms of insider trading justify a broad prohibition?

    In my article I believe I have answered that challenge.  First, I explain why there is a significant mismatch between private gains and social gains when trading on inside information. This mismatch arises both because of how inside information is produced (largely as a byproduct of other activities) and how trading on this information generates profits (at the expense of others). I…

    For some time now, the insider trading enforcement regime in the United States has been criticized by market participants, scholars, and jurists alike as lacking clarity, theoretical integrity, and a coherent rationale. One problem is that Congress has never enacted a statute that specifically defines “insider trading.” Instead, the current regime has been cobbled together on an ad hoc basis through the common law and administrative proceedings. As the recent Report of the Bharara Task Force on Insider Trading puts it, the absence of an insider trading statute “has left market participants without sufficient guidance on how to comport themselves, prosecutors and regulators with undue challenges in holding wrongful actors accountable, those accused of misconduct with burdens in defending themselves, and the public with reason to question the fairness and integrity of our securities markets.”

    Congress appears to be responding, and a number of bills that would define insider trading and otherwise reform the enforcement regime are receiving bipartisan support. But it would be a mistake to pass new legislation without first taking the time to get clear on the economic and ethical reasons for regulating insider trading. This is particularly true in light of the fact that the general…