University of Illinois Law Review
Common conceptions about the history of insider trading norms in the United States are inaccurate and incomplete. In his landmark 1966 book Insider Trading and the Stock Market, Dean Henry Manne depicted a world in which insider trading was both widespread and universally accepted. It was SEC enforcement efforts in the early 1960s, he contended, that swayed public opinion to condemn what had previously been considered a natural and unobjectionable market feature. For five decades, the legal academy has largely accepted Manne’s historical description, and the vigorous debates over whether the federal government should prosecute insider trading have assumed, either explicitly or implicitly, the accuracy of those views. This paper challenges that conventional wisdom and shows that the shift in insider trading norms began earlier than has previously been supposed and substantially preceded governmental enforcement efforts. Insider trading, while generally believed to be ubiquitous in turn-of-the-century stock markets, was not universally condoned. In fact, the propriety of the practice at publicly traded companies was highly contested. Those debates coincided with the growth of public companies and an ongoing shift in views about how the stock market functioned. The early twentieth century debate over insider trading thus featured both modern arguments about property rights in information and the effect that insider trading has on stock market participation and older ideas about manipulation and market inefficiency that would generally not be accepted today.