Statutory Framework for Insider Trading Randall J. Fons

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CHAPTER 1

Statutory Framework for

Insider Trading

Randall J. Fons

An analysis of insider trading law in the United States starts with Section

10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated

by the Securities and Exchange Commission (SEC or Commission) pur-

suant to the authority it received under that statute. Indeed, much of the

law surrounding insider trading focuses on those provisions. However,

the federal securities laws also provide other statutes and regulations that

should be considered when analyzing trading in securities by “insiders.”

Following is a summary of that broader statutory framework related to

insider trading.

1. Exchange Act Section 10(b)

andRule10b-5

Insider trading law springs from Exchange Act Section 10(b) and Rule

10b-5 thereunder, which are commonly viewed as the principal statutory

weapons against securities fraud. Section 10(b) provides:

It shall be unlawful for any person, directly or indirectly, by the use

of any means or instrumentality of interstate commerce or of the

mails, or of any facility of any national securities exchange to use

or employ, in connection with the purchase or sale of any security

registered on a national securities exchange or any security not so

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