Information Is Not a Crime

Financial markets have always thrived on information and were early adopters of technology from the telegraph and ticker machines to market-data terminals. But now the Obama administration claims that too much information is a crime.

A federal appeals court has rejected that view. The full Second U.S. Circuit Court of Appeals two weeks ago affirmed a December decision overturning high-profile insider trading convictions in a case brought by Preet Bharara, a top federal prosecutor in New York. He convicted traders Anthony Chiasson and Todd Newman in a case the court reversed with prejudice.

The court cited the “doctrinal novelty” of Mr. Bharara’s case. Until recently, wrongful insider trading was understood to occur when someone violated a fiduciary responsibility to keep information confidential by trading, or advising another party to trade, on the information.

Activist prosecutors now want to criminalize the use of information even without a violation of fiduciary duty. Mr. Bharara didn’t bother to charge the two tipsters he said violated obligations to their employers. Both mentioned information about their company to friends, who passed it on to others until it eventually reached the defendants. Mr. Bharara brought charges even though the defendants didn’t know the information came from insiders violating their duty—notwithstanding the requirement of criminal intent to prove a crime.

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