One has to admire U of I Law Professor Larry Ribstein’s sang-froid. In his Truth on the Market blog post the other day, he chastised The Wall Street Journal’s heavy-hitter Holman Jenkins.
In a Saturday column, Jenkins hailed hedge fund manager Raj Rajaratnam’s jury conviction because of the “whiff of criminality” surrounding how Rajaratnam obtained insider information.
But what the jury and Jenkins disliked, ugly as it was, happens not to be a federal crime.
Again, Rajaratnam committed a federal crime only because the theft of information is a kind of deception, which in turn is what makes the trading illegal under present securities law. If you steal information but don’t trade it’s not a federal crime. If you trade on legitimately acquired non-public information it’s not a crime. Why, then, should it be crime if you steal information but trade on other information?
On Monday, Ribstein took on a WSJ story on how JP Morgan Chase woos brokerage business from hedge funds by letting their managers meet their star I-bankers:
The article makes the following silly statement:
“Under insider-trading laws, it is generally illegal to buy or sell securities based on “material,” or significant, information that isn’t publicly available.”
No. It’s generally legal to trade on non-public information, even if it’s material. The exception is when the trader knows the information is obtained illegally, as the jury found in the Raj trial.
Ribstein isn’t saying that the practice is pretty, but at a time when some bad guys are trying to expand the definition of “insider trading” — which he and many economists believe hurts no one, and can benefit the public — it is important even for The Wall Street Journal to keep its definitions straight.