Shareholder authorized inside trading: A legal and moral analysis

This article evaluates inside trading from a legal and a moral perspective. From both of these points of view, the practice of inside trading is fraudulent whether it occurs in the traditional format or in the variation known as misappropriation. Fraud is a legal tort and a moral wrong consisting of a breach of duty that intentionally causes harm to persons that the insider can reasonably foresee. In defense against allegations of fraudulent inside trading, the defendant may argue that one or more elements of fraud are not evident, or, if the elements are clear, that the fraud was a justified means of avoiding some worse evil or of achieving some greater good. The article concludes that inside trading, under circumstances approved by shareholders, is neither fraudulent nor unfair. Bill Shaw is a Professor of Business Law at the University of Texas at Austin.