George Tepe

The Supreme Court’s decision in Salman v. United States left unanswered an important issue concerning the reach of Rule 10b-5’s prohibitions with respect to trades based on a tip of material inside information: in cases based on the misappropriation theory, is it necessary to show that the tipper enjoyed a personal benefit of which the trader was aware? The personal benefit test was originally developed in the context of tipping cases based on the classical theory of insider trading. The… Show more

The Supreme Court’s decision in Salman v. United States left unanswered an important issue concerning the reach of Rule 10b-5’s prohibitions with respect to trades based on a tip of material inside information: in cases based on the misappropriation theory, is it necessary to show that the tipper enjoyed a personal benefit of which the trader was aware? The personal benefit test was originally developed in the context of tipping cases based on the classical theory of insider trading. The Supreme Court in Salman explicitly said that it was not reaching the matter of whether the test should be extended as well to tipping cases based on the misappropriation theory. And there is nothing in the language of Chiarella, Dirks, and O’Hagan—the earlier seminal Supreme Court cases relating to the reach of Rule 10b-5’s prohibitions on insider trading—that calls for doing so. The lower courts, however, have split on the issue, and in recent years a number of them, through a set of statements unaccompanied by reasoned analysis, seem to be sleepwalking into inserting the personal benefit requirement into misappropriation-theory-based tipping cases. We show that this recent drift is seriously misguided as a matter of both doctrine and policy. Allowing this errant doctrine to become firmly lodged in the law would needlessly leave many socially undesirable trades unpunished and hence undeterred. Show less

Many institutional investors have made increasing the diversity of corporate boards a priority, yet activist investors that rely on the support of these institutional investors often make boards less diverse. Boards should take advantage of this divergence between the priorities of institutional investors and the actions of activist investors in resisting activist campaigns, and prepare for those campaigns by increasing board diversity.

A blog post on the Columbia Law School Blue Sky Blog (Blog on Corporations and the Capital Markets) co-authored with Merritt Fox regarding the personal benefit requirement for insider trading and arguing that such requirement should not be required for cases brought under the misappropriation theory.

Equity investors, whether hedge funds or retail investors, must trade stocks through broker-dealers, and when these investors are not actively trading, their securities and uninvested cash remain with their broker-dealer. What broker-dealers do with these “idle” customer assets is a vast and largely unexamined business that is a key source of revenue for broker-dealers. This Note provides the first comprehensive examination of the trade-offs in regulating broker-dealer use of idle customer… Show more

Equity investors, whether hedge funds or retail investors, must trade stocks through broker-dealers, and when these investors are not actively trading, their securities and uninvested cash remain with their broker-dealer. What broker-dealers do with these “idle” customer assets is a vast and largely unexamined business that is a key source of revenue for broker-dealers. This Note provides the first comprehensive examination of the trade-offs in regulating broker-dealer use of idle customer assets through case studies of broker-dealer sweeps of uninvested customer cash, broker-dealer lending of customer margin securities, and the effect of securities lending on customers’ shareholder votes. On one hand, broker-dealer use of idle customer assets potentially increases agency costs and systemic risk by increasing broker-dealer interconnectedness and allowing broker-dealers to profit off customer assets. On the other hand, proper use of idle assets can generate positive outcomes for customers through higher returns and positive social benefits for the general market. This Note proposes and examines potential reforms like increased disclosure and reporting requirements that provide better protection for broker-dealer customers.
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