After studying the current state of the law, including the extensive common law, prior attempts at legislation and rulemaking, as well as hearing from various interested constituencies (all of whom recognized the challenges created by the uncertainty and ambiguity in the law), the Task Force has concluded that reform that simplifies, clarifies, and modernizes insider trading law is indeed necessary and long overdue.

With that conclusion reached, the Task Force then asked itself what is the best form for such reform to take? Should it come through legislation in Congress or would SEC rulemaking be sufficient? Legislation allows for a clean slate upon which to write a new and sensible law, freed from any of the long-accumulated baggage of existing common law. It also carries with it the imprimatur of democratic legitimacy. The Task Force has concluded that because the SEC is bound in its rulemaking to existing Supreme Court precedent, it would be constrained by and unable to fully clear itself from many of the ambiguities and uncertainties that currently plague the legal regime. The SEC could seek to provide some greater clarity at the margins, but in the Task Force’s view, real and substantial improvement will need to take the form of new legislation.

In thinking about what such legislation should look like, the Task Force has distilled its conclusions into a number of general principles that it believes should guide efforts at drafting any new legislation.

PRINCIPLE 1: Aim for clarity and simplicity.

PRINCIPLE 2: Focus on “wrongful” use of material nonpublic information, not exclusively on “deception” or “fraud.”

PRINCIPLE 3: Eliminate the “personal benefit” requirement.

PRINCIPLE 4: Clearly and explicitly define the state of mind requirement for criminal and civil insider trading, as well as the knowledge requirement for tippees.