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45 Vill. L. Rev. 27 (2000)
Stock Market Insider Trading: Victims, Violators and Remedies - Including an Analogy to Fraud in the Sale of a Used Car with a Generic Defect

handle is hein.journals/vllalr45 and id is 43 raw text is: 2000]

Reuschlein Lecture
STOCK MARKET INSIDER TRADING: VICTIMS, VIOLATORS AND
REMEDIES-INCLUDING AN ANALOGY TO FRAUD IN THE
SALE OF A USED CAR WITH A GENERIC DEFECT*
WILLIAM K.S. WANG**
I. INTRODUCTION
S TOCK market insider trading is buying or selling a publicly traded
stock based on information that is both nonpublic' and material.2
This Article will address the following four questions:
* This Article is adapted from my Reuschlein Lecture held on April 23, 1999
at the Villanova University School of Law. I would like to thank Dean Mark
Sargent and the faculty of the Villanova University Law School for inviting me to
be the Reuschlein Distinguished Visiting Professor in the spring of 1999. I greatly
admire the late Dean Harold Reuschlein and felt deeply honored to hold the
Reuschlein chair. My visit at Villanova was an immense pleasure.
I am grateful to my wife, Kwan Wang, for her many suggestions about my
speech and manuscript and to Professor Vik Amar for reading my manuscript and
making helpful comments. I would also like to thank Dean Joel Seligman and
Professors Steve Bainbridge, Rich Booth, Bill Carney, Jim Cox, David Faigman,
Henry Hansmann, Kim Krawiec, Jon Macey, Aaron Rappaport, Larry Ribstein, Bob
Thompson, Dick Turkington, Kelly Weisberg, Elliott Weiss and particularly Lynn
Stout for comments or suggestions about certain portions of my manuscript. I
greatly appreciate the help of my research assistants at Villanova: Jeffrey Campisi,
Robert Smith and especially Jeffrey Bodle.
Parts of this Article are drawn from the treatise: WILLIAM KS. WANG & MARC I.
STEINBERG, INSIDER TRADING (1996 & Supp. 2000).
** Professor of Law, University of California, Hastings College of Law. B.A.,
Amherst College. J.D., Yale Law School.
1. See WILLIAM K.S. WANG & MARC I. STEINBERG, INSIDER TRADING § 4.3, at 153-
66 (1996) [hereinafter INSIDER TRADING] (discussing meaning of nonpublic);
WILLIAM K.S. WANG & MARK I. STEINBERG, INSIDER TRADING 2000 SUPPLEMENT § 4.3,
at 61-65 (2000) [hereinafter INSIDER TRADING SuPP.] (same).
The Securities and Exchange Commission (SEC or Commission) is consid-
ering adopting a clarifying rule in this area. See Neil Hare, Four Insider Trading
Rules Possible, SEC Solicitor Gonson Says, 31 SEC. REG. & LAw REP. (BNA) No. 29, at
973 (July 23, 1999) (discussing possibility of new rules on insider trading).
2. For discussion of the definition of materiality for § 10(b) and SEC rule lOb-
5 and its application to insider trading cases, see INSIDER TRADING, supra note 1,
§ 4.2, at 129-52; INSIDER TRADING SUPP. § 4.2., at 39-61.
Section 10(b), 15 U.S.C. 78j(b) (1999), and its accompanying rule lOb-5, 17
C.F.R. § 240.lOb-5 (1999), are important antifraud provisions of the federal securi-
ties laws. For § 10(b) and rule lOb-5, one definition of material information
adopted by the United States Supreme Court is: information which there is a sub-
stantial likelihood that a reasonable shareholder would consider important in de-
ciding whether to buy or sell. See Basic Inc. v. Levinson, 485 U.S. 224, 231-32
(1988) (paraphrasing definition of materiality adopted in TSC Indus. v. Northway,

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