"Owning Trading Opportunities" by Kevin Douglas

Kevin Douglas, Michigan State UniversityFollow

Keywords

Business Organizations Law, Jurisprudence, Law and Economics, Law and Philosophy, Natural Law, Property Law and Real Estate, Securities Law

Abstract

Owning Trading Opportunities identifies the doctrines and policy rationales used to protect property rights in corporate opportunities. It then explores adopting these doctrines and rationales to reform the notions of "fairness," "public interest," "investor protection," "market confidence," and "economic efficiency" driving the regulation of insider trading.

This approach yields several benefits. First, it shows that a policy commitment to equal trading opportunities for all investors is the functional equivalent of a commitment to fostering equal access to information for all investors. The U.S. Supreme Court attempted to reject the latter but failed by embracing the former.

Second, corporate opportunity cases recognize business principals as having property interests in certain economic opportunities. Corporate directors and officers are said to obtain unjust enrichment when they take these opportunities for themselves without appropriate disclosures or their principal's informed consent.

Finally, corporate opportunity cases recognize several instances in which fiduciaries may take opportunities for themselves without disclosing them or obtaining their principals' consent. If insider trading penalties are based on a breach of fiduciary obligations, adopting these features of business organization law should improve the law's legitimacy and clarity.

This Article's recommendations are in tension with the market-confidence rationale for prohibiting insider trading. As an alternative rationale, this Article explains the prohibition as a form of vice law.