Statutory findings and insider trading regulation

Insider trading law has been controversial and complicated in large part because the statutory basis of the prohibition of insider trading has seemed unclear. The Supreme Court fueled the controversy with a series of cases that took a literalist approach to the securities statutes but failed to resolve whether the Securities and Exchange Commission had the power either to prohibit trading on the basis of misappropriated information or to prohibit all trading by those in possession of material nonpublic information about tender offers. The Supreme Court recently addressed those issues in United States v. O'Hagan, and surprised most commentators by holding that the Commission has broad power to regulate insider trading, including the power to regulate trading on the basis of misappropriated information, and to regulate most informed trading in the context of tender offers. The controversy over insider trading law has centered on several provisions of the Securities Exchange Act of 1934, with courts parsing the apparently vague language of those provisions to determine the limits of the SEC's regulatory power. In, this Article, Professor Thel examines a statute enacted in 1988 that directly addressed the Commission's power to regulate insider trading. Although this statute has received little attention, it establishes a broad statutory basis for insider trading regulation, in addition. to whatever power the Commission was initially granted in the Exchange Act. The 1988 statute employed the device of congressional findings to establish the SEC's regulatory authority, and this Article also explores the use of this technique as a device for establishing substantive law. Professor Thel suggests that this technique was a particularly well-suited response to the confusing state of the law that faced lawmakers in 1988. Although using findings to establish law may implicate difficult issues of institutional power and competence, past judicial-practice indicates that the courts should honor and implement the 1988 findings. Such respect is particularly appropriate in the context of securities regulation, where the Supreme Court has long justified narrow statutory interpretations by insisting that regardless of the propriety of challenged conduct, it is up to Congress to maize law.