Earlier this month, when Frank "Perk" Hixon Jr., formerly a senior executive at Evercore Partners, a small investment bank, pleaded guilty to insider-trading charges, it marked the 80th conviction for that crime that prosecutors in New York had secured since 2009. During much the same period the Securities and Exchange Commission, Wall Street’s main regulator, has taken action against insider trading 249 times. The most notable of these cases, the conviction of Rajat Gupta, a former boss of McKinsey and former board member of Goldman Sachs and Procter & Gamble, recently was upheld on appeal.
Many still question the value of pursuing insider-trading cases, but the ability of enforcement agencies to bring and win new cases is beyond argument. Their success is all the more striking in that the crime itself is a relatively new one.
The first insider-trading case was brought only in 1961 and, but for the principle involved, was forgettable. The defendant was a stockbroker who sat on a corporate board that had approved a dividend cut. He tipped off another stockbroker, who sold shares for clients before the news became public. The penalty was trivial: a small fine and suspension imposed by the New York Stock Exchange.
It was accompanied, however, by an extensive opinion setting out a theory for insider-trading enforcement written by a law professor, William Cary, who recently had become chairman of the S.E.C.
It required the takeover boom of the 1980s, and the resulting value of early information on deals, to bring Cary’s ideas to the fore. Since then prosecutors have honed their methods for proving wrongdoing, using "electronic bread crumbs" to follow the crime back to its source. Evidence against Hixon, for example, included the times of trades made in the name of a former lover and of a relative, along with the location of the computers used to make them. This information squared with his travel schedule and with the moments when he gained access to valuable information.
Credit-card receipts, mobile-telephone records and details of the use of public-transport passes have become standard tools for investigations. People increasingly leave trails of data. Secrets may be getting harder to keep.
Regulators and prosecutors also are pushing to expand the scope of the law. It is broadly accepted that employees who are exposed to commercial secrets in the course of their work have a duty to avoid trading on them or tipping off others about them. By the same token, outsiders have a duty not to misappropriate such information.
On the margins, however, the extent of these duties can be hard to define. An article published last year in The Columbia Business Law Review by Stephen Crimmins, a lawyer formerly with the S.E.C., shows the tension. Last year a jury exonerated Mark Cuban, owner of the Dallas Mavericks basketball team, for selling a stake in a company after being told that it would take an action he opposed. He was not an executive, and he did not leak the information – he simply used it himself. A jury concluded that he had no duty to the company.
Last year another jury determined that there was nothing wrong in using valuable information overheard when a friend was speaking on the telephone.
In yet another case decided last year, a jury found in favor of workers at an Illinois rail yard who had bought shares in their company after seeing unfamiliar people in suits looking around. They had concluded that a takeover was imminent. In 2009 a computer hacker who stole inside information from a public-relations firm about one of its clients was spared insider-trading charges in connection with the crime.
The Justice Department has said that it is assessing whether high-speed trading violates insider-trading rules, in as much as it involves divining trades that are about to be executed and jumping in ahead of them.
"Insider-trading theories can be stretched to cover all sorts of things," Crimmins says, but doing so undermines clarity about what is legal.
That may not bother prosecutors.