Thanks to Dr Gibson for alerting me to this. He’s also got a piece on insider trading that was first published in the Freeman in December of 2010. We’ve been able to reproduce it here at NOL. He writes:
Insider trading is restricted but not entirely forbidden. Just what constitutes the “bad” kind of insider trading? This is generally understood to be trading on information originating within a company that could have a material effect on the share price had it been publicly known. The law applies not only to insiders—employees and directors—but also to any outsiders to whom inside information is disclosed […]
We see that insider-trading regulations are subjective and arbitrary, rivaling antitrust laws in this respect. It is no wonder that Congress never defined insider trading and that the SEC resisted defining it for many years; the courts have had to make up the rules as cases arose. Every so often someone like Martha Stewart is thrown to the lions, drawing cheers from the jealous and spreading fear to successful and therefore high-profile managers.
Dr Gibson’s suggestions for alternatives to government regulation are, by themselves, worth the price of admission.
Update: this piece, also by Dr Gibson, explaining what hedge funds are is well worth your time, too.