Cornell Law Review Volume 98 Issue 4

The Last Temptation of Congress: Legislator Insider Trading and the Fiduciary Norm Against Corruption

On April 4, 2012, Congress passed the STOCK Act, which officially banned the practice of insider trading by members of Congress and formally declared them to be fiduciaries for purposes of federal insider trading law. The impetus for the legislation was the perception, held by a majority of commentators, that insider trading by members of Congress did not violate federal securities law because they were not fiduciaries to anyone. In this Article, I make the case that the majority view was and continues to be wrong, and why that matters. Specifically, I argue that even if the STOCK Act had not passed and even if it were to be repealed, judges could build on existing precedents and employ unextraordinary judicial reasoning to impose the requisite fiduciary duties on legislators. In Part I, I provide a succinct summary of federal insider trading law, focusing on the controversial element as applied to legislators—the existence and breach of fiduciary duty. I then explore the standard approach taken by courts in resolving novel instances of potentially fiduciary relationships: traditional analogical reasoning to well-established cases. In Part II, I employ this standard approach to make the case that judges could find legislators to be fiduciaries under federal insider trading law. In Part III, I more deeply justify the analogical reasoning employed in Part II. Specifically, I show that one core purpose of fiduciary law has been to fight public corruption and that legislator insider trading could be classified as a form of public corruption. This analysis helps reveal an organic alignment between recognizing legislator insider trading as a breach of fiduciary duty and an important goal of the common law of fiduciaries—that of deterring corruption. Part IV addresses various objections.

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