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Insider trading: Lawyers say there can be gray areas

Publication Date: 
November 13, 2009
Silicon Valley/San Jose Business Journal
William-Arthur Haynes

Professor Robert Weisberg is quoted in this article on gray areas in determining insider trading cases:

Black and white can turn to gray when it comes to what is prosecutable as insider trading.

It’s at the forefront of conversation in legal circles right now, with the widening Galleon Group hedge fund insider trading case.

Whether or not the defendants were required to keep their insider tips to themselves and whether it was the type of information that moves markets are two areas their lawyers are sure to focus on.

The market-moving question can get very “sticky,” said Eric Talley, a professor at University of California, Berkeley Boalt Hall School of Law and co-director of Boalt’s Center for Law, Business, and the Economy.

One of the key elements of insider trading is whether the trade occurred on information that wasn’t public, and whether there was a major swing in the stock price, Talley said.

“What that usually translates into is that it could induce a 5 percent change, either up or down, in the stock,” Talley said.


“It’s an odd thing,” Talley said. “If Company A doesn’t have a confidentiality policy that extends to the intent of future commercial purchases then, yes, it’s material and nonpublic but the employee isn’t breaching fiduciary duty by disclosing that.”

For others, however, the insider trading issue remains black and white.

Stanford Law School professor Robert Weisberg said, “Obviously there are borderline cases, but it’s not too hard to discern whether somebody is a corporate insider and whether the information is available to the public.”


“I think it’s important to see this as a case that is significant in its scope perhaps, but I’d be loath to draw inferences about trends,” Weisberg said. “The best thing we can say is that the government has a strong case against some of the individuals here and maybe needs to act against them but I wouldn’t infer that this is a major problem here.”