10 U.C. Davis Bus. L.J. 1 (2009-2010)

handle is hein.journals/ucdbulj10 and id is 1 raw text is: MEASURING INSIDER TRADING DAMAGES FOR A PRIVATE
PLAINTIFF
WILLIAM K.S. WANG*
ABSTRACT
This article discusses various measures of the damages of a private
plaintiff who sues a stock market insider trading defendant. The measures are:
pure out of pocket, expedient out of pocket, rescissory, and cover.
The pure out of pocket measure is the difference between the
transaction price and the real or actual share value. Implicitly, this measure
assumes that but-for the defendant's fraud, the plaintiff would have traded at
the same time anyway, but at a better price.
The so-called expedient out of pocket measure accepts the pure
out of pocket measure in principle. Nevertheless, to avoid the practical
difficulty of determining the real value of the stock at the time of the
plaintiffs trade, the expedient out of pocket measure substitutes for this
true value the market price after dissemination of the correct or previously
nonpublic information. A variant of the expedient out of pocket measure
looks to either the dollar or percentage price change at curative dissemination
and uses this change as a measure of the damages to the plaintiff. The price
change at dissemination could be applied to the plaintiff s transaction price to
estimate the true value at the time of the plaintiffs trade. More complex
variations exist to correct for the effects of extraneous factors.
The rescissory measure attempts to undo the fraudulent transaction and
return the defrauded party to her position before the fraudulent inducement
caused her to enter into the trade. In other words, rescissory damages award a
plaintiff the dollar amount at the time of judgment necessary to put her back in
her original position prior to the fraudulent transaction. This measure
implicitly assumes that the plaintiff would not have traded but-for the
defendant's fraud.
For the rescissory measure, courts usually require the plaintiff to prove
a contractual relationship with the defendant. Most stock market insider
* Professor, University of California, Hastings College of the Law. The author wishes to
thank Ms. Robin Krutzsch for her valuable research assistance. This article draws on William
K.S. Wang & Marc I. Steinberg, Insider Trading (PLI 2d ed. 2008)  4:8.2 and on William
K.S. Wang & Marc I. Steinberg, Insider Trading (Oxford Univ. Press 3d ed. forthcoming
2010). Professor Steinberg initially wrote  4:8.2's discussion of disgorgement of windfall
profits and benefit of the bargain.

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