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While the law on insider trading has been convoluted and, in Judge Jed S. Rakoff’s words, “topsy turvy,” the law on insider trading is supposedly clear on at least one point: insider trading liability is premised upon a fiduciary relationship. Thus, all three seminal U.S. Supreme Court cases articulating the necessary elements for demonstrating any form of insider trading liability under § 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934 made crystal clear that a fiduciary relationship represented the lynchpin for such liability.

Alas, insider trading law is not clear about the source from which the fiduciary relationship arises. Some insist that the source is federal law, while others insist that it is some aspect of state law. Twenty-five years ago, Professor Stephen Bainbridge emphasized the relative lack of attention focused on this source question, noting that such inattentiveness “robbed the federal insider trading prohibition of coherence and predictability.” Nevertheless, this inattentiveness persists, causing debate about the source to periodically reemerge.

In United States v. Whitman, Judge Rakoff sought to settle this debate in favor of federal law. While the Second Circuit affirmed the holding, other federal and state courts contend that the source of the fiduciary relationship stems from state law.

This Article agrees with the result in Whitman but nevertheless argues that pinpointing appropriate rationales for the result is challenging primarily because the insider trading regime is riddled with mixed signals.


corporations, securities law, insider trading, fiduciary duties, U.S. v. Whitman, Judge Jed Rakoff, federal courts, policy goals, role of state law, principle of certainty

Publication Title

Fordham Law Review

Publication Citation

89 Fordham L. Rev 409 (2020).