Introduction

Abstract

In the two-and-one-half decades since the publication of Henry Manne’s classic Insider Trading and the Stock Market (1966), the attention devoted to insider trading in both the financial press and by regulatory authorities has increased dramatically. Over the same period, the nature of insider trading has changed significantly. The archetypical insider trading case of the mid-1960s is that of Texas Gulf Sulphur Co., in which officers purchased their firm’s shares subsequent to an important mineral discovery but before its public announcement. In contrast, recent cases have often involved preannouncement trading in the stocks of takeover targets not only by registered corporate insiders (e.g., officers, directors, and large shareholders) but also by those outside the firm. These outside-insiders include investment bankers, attorneys, financial printers, and relatives and acquaintances of those with access to material nonpublic information. As a result, regulatory efforts have shifted partially from attempts to monitor those inside the firm to the difficult task of prosecuting outside-insider trading.