Insider Trading Regulation of Law Firms: Expanding ITSFEA's Policy and Procedures Requirement

Authors

Peter M. O. Wong

Abstract

In 1988, in response to rampant insider trading during the 1980s, Congress passed the Insider Trading and Securities Fraud Enforcement Act of 1988 ("ITSFEA"). ITSFEA contained a provision which imposed liability on "controlling persons" for insider trading activities of persons under their supervision. This provision shifted the burden of monitoring individuals from the Securities and Exchange Commission ("SEC") to 'employers. Congress based this liability on the policy that responsibility should be shared by those who directly benefit from the securities industry and the belief that firms are in the best position to monitor their employees.

This Note discusses the provisions of ITSFEA relevant to the legal profession and addresses problems that these provisions have created. The author argues that ITSFEA left a regulatory void in the area of regulation of the legal profession.

The Note then traverses the current regulatory landscape of securities law, focusing on regulations relevant to lawyers and law firms. Included are discussions regarding securities fraud theories, regulation by the SEC, and nationwide guidelines for attorney conduct.

Ultimately, the Note advances a proposal to resolve the problems of regulating the legal profession. The proposal advocates stricter regulation to discourage attorneys and law firm employees from taking advantage of the abundant opportunity to commit insider trading violations. Specifically, the proposal advocates a requirement that law firms adopt and enforce policies designed to prevent against insider trading by their employees. Under the proposal, the SEC would be granted greater authority over the legal profession to manage and enforce this new requirement. Adoption of this proposal, it is argued, would establish policies and guidelines for the legal profession that would protect the confidentiality of corporate information and would clarify the responsibilities of the legal profession.

Recommended Citation

Peter M. O. Wong, Insider Trading Regulation of Law Firms: Expanding ITSFEA's Policy and Procedures Requirement, 44 Hastings L.J. 1159 (1993).
Available at: https://repository.uclawsf.edu/hastings_law_journal/vol44/iss5/5