Wall Street Journal Features Perino’s Insider Trading Research

On Friday, March 15, 2019, the Wall Street Journal published an article highlighting some of the findings of Professor Michael Perino’s latest paper, Real Insider Trading. One of the key findings of the research is that many insider trading defendants are not the elite market participants normally trumpeted in enforcement rhetoric. Instead, the SEC in particular frequently targets mid-level employees and their friends and family engaging in opportunistic trading, most often involving unannounced M&A transactions.

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Here is the abstract for Real Insider Trading:

Government officials and academics offer starkly different portraits of insider trading enforcement. In popular rhetoric, insider trading cases are about leveling the playing field between elite market participants and ordinary investors. Academic critiques vary. Some depict an untethered insider trading doctrine that enforcers use to expand their power and enhance their discretion. Others see enforcers beset with agency cost problems who bring predominantly simple, easily resolved cases to create the veneer of vigorous enforcement. Unfortunately, this debate has, so far, been based mostly on anecdote and conjecture rather than empirical evidence. This article addresses that gap by collecting extensive data on 465 individual defendants in civil, criminal, and administrative actions to assess how enforcers actually operationalize insider trading doctrine. The cases enforcement authorities bring are shaped by a complex and cross-cutting set of institutional and individual incentives, cognitive biases, legal requirements, the history of failed enforcement efforts, and the way in which the agency and the self-regulatory organizations deploy their investigatory resources. SEC enforcement is dominated by small stakes, opportunistic trading by mid-level employees and their friends and family, most often involving M&A transactions. Those cases settle quickly, half within 30 days of filing. Criminal enforcement is generally reserved for more serious cases, measured by, among other things, the type of defendant, the size of the insider trading network, and the profits earned. In both settings, there is little evidence that enforcers are systematically stretching the boundaries of insider trading doctrine, suggesting that there is little need for more precise statutory language to curb enforcement overreach.

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