A [Dis]Semblance of Privity: Criticizing the Contemporaneous Trader Requirement in Insider Trading

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Delaware Journal of Corporate Law, Vol. 24, P. 83, 1999

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Veronica M. Dougherty
paper description
This piece argues that the current criterion of eligibility to bring a private action for insider trading is mistaken and harmful, and suggests an alternative standard. For nearly two decades, courts have required that a person wishing to bring suit for insider trading have traded ?contemporaneously? with the insider. The requirement has acted as a proxy for privity, despite the fact that privity was rejected as being an inappropriate requirement when trading takes place on anonymous national securities markets. A decade ago, Congress codified this approach when it created an express private right of action for insider trading. In doing so, it only exacerbated the problems created by the requirement. This article analyzes and critiques the theoretical underpinnings of the contemporaneous trader requirement and recommends its replacement with a more open standing requirement coupled with the damage limitations already common to such cases.