11 Harv. J. L. & Pub. Pol'y 101 (1988)
In Defense of the Regulation of Insider Trading

handle is hein.journals/hjlpp11 and id is 121 raw text is: IN DEFENSE OF THE REGULATION OF
INSIDER TRADING
SAUL LEVMORE*
The regulation of insider trading-transactions in the securi-
ties of a firm by persons possessing special information that is
derived from their advisory or fiduciary relationship or their
employment with the firm-has had strong support among
those who look to noneconomic values to determine the proper
role of government and the ideal content of laws in our society,
but it has had much weaker support among observers who
identify with the law-and-economics movement. In this essay, I
argue that there is little reason to think that unregulated in-
sider trading is a good thing. These comments stress the eco-
nomic dangers of insider trading and indicate, in passing, that
these dangers are related to those that underlie-but that are
also insufficiently recognized in-the case for not regulating the
behavior of managers seeking to thwart tender offers.
Part I of these comments compares the disclose-or-abstain
scheme, the current strategy of our federal laws for regulating
insider trading, with other schemes, including deregulation.
Part II focuses on insider trading and mergers.
I.
The starting point in assessing different strategies for dealing
with insider trading is a framework-adopted by many com-
mentators today, but advocated by Henry Manne alone some
years ago-that recognizes both the value of information and
the importance of protecting property rights. In the settings
that raise the question of the proper regulation of insider trad-
ing, these two goods, information and property rights, are fre-
quently forced into competition with one another. A legal
system that stressed the value of information might, for in-
stance, encourage or force all businesses to disclose informa-
tion about future plans and projects. After all, when such
information is withheld, neighbors, customers, suppliers, inves-
tors, and competitors are likely to make suboptimal decisions.
It is obvious, however, that this sort of full disclosure, while

* Professor of Law, University of Virginia.

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