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Uncorporate Insider Trading

By Peter Molk. Full Text.

Insider trading restrictions rely on the existence of fiduciary duties. Developed at a time when company executives owed mandatory fiduciary duties to the company and its owners, the fiduciary duty requirement is routinely satisfied for a range of quintessential insider trading situations. However, new “uncorporate” entity forms—limited liability companies and limited partnerships—have recently arisen that allow for the complete elimination of all management’s fiduciary duties. When fiduciary duties disappear, so too does classical insider trading liability. For these entities, several of which are major publicly traded companies, traditional insider trading restrictions apparently no longer apply.

This Article assesses the problem and shows how many of the policy arguments that historically justified insider trading liability continue to support that liability among alternative entities. At the same time, critical differences between uncorporate entities and standard corporations may justify limiting insider trading liability among alternative entities in some circumstances. I consider a variety of ways to accomplish these goals.