Adam Felsenthal


In the past few years, federal prosecutors and the Securities and Exchange Commission (SEC) have engaged in the widest-ranging and most successful probe of insider trading ever, focusing in particular on investment professionals. However, the government has failed to charge anyone on the basis of supervisory liability, essentially an accusation of failing to notice and stop illicit trading done under one’s supervision. This Article discusses all of the potential ways in which prosecutors could bring such a charge, ranging from SEC administrative liability to civil and criminal charges. Through the lens of a theoretical situation in which an “innocent bystander” manager has failed to stop a “rogue trader” from trading on the basis of material non-public information, it proposes answers for some of the unanswered questions in this area of the law, and assesses the practical potential for the government bringing any of the above charges against such a manager.