em searched for an internally consistent justification for banning such trading. That quest culminated in the early 1980’s when the Supreme Court issued its two most important insider trading decisions, at that time, Chiarella v. United States and Dirks v. SEC. These decisions brought clarity and coherence to the law as applied to insider trading. Several major Wall Street news stories in the early 1990s involved insider trading by Ivan Boesky and Dennis Levine. Both were sentenced to jail, and Ivan Boesky was barred from trading stock and forced to return $100 million in illegal insider profits. The prosecution of Boesky uncovered a large ring of insiders and led to Michael Milken, the famous junk bond deal maker for Drexel Burnham Lambert. Junk bond- a bond that involves greater than usual risk as an investment and pays a relatively high rate of interest, typically issued by a company lacking an established earnings history or having a questionable credit history. Junk bonds became a common means for raising business capital in the 1980’s, when they were used to help finance the purchase of companies, especially by leveraged buyouts. Milken transformed corporate takeovers by the use of high-yield junkbonds, becoming enormously wealthy in the process. In 1989, federal grand jury handed down a 98-count indictment against Milken for violations of federal securities and racketeering. He pled guilty to securities fraud and charges in 1990, and government dropped the more serious charges of insider trading and racketeering.The regulation of insider trading cannot be justified on the grounds that it promotes the goals of efficiency, fairness, or market integrity. The only conceivable justification for banning insider trading is that such trading involves the theft of valuable corporate property from its rightful owner. The attempts to justify insider trading regulation on other grounds simply reflect efforts by special...
