Fraud and Insider Trading in American Securities Regulation: Its Scope and Philosophy in a Global Marketplace

The principal antifraud provision of securities law in the United States is rule lOb-5. Fraud consists of either a material misstatement reasonably calculated to influence the investing public or silence when an independent duty to speak arises because of prior conduct or a pre-existing fiduciary duty. Judicial theories pursuant to this rule such as the "abstain or disclose" theory and the "misappropriation" theory constitute the major part of U.S. insider trading law. The author contends that the two main tests used to determine when rule lOb-5 rule is applicable, the "effects test" and the "conduct test," are too broad and may result in undesirable extraterritorial jurisdiction.

He posits an alternative test which is based on the source of the alleged violation, thereby limiting the jurisdictional application of this rule.