All sound and fury, signifying nothing

About SEC v. Wahi: A win by default isn't much of a "win." Judge Lin misstated the core holding of SEC v. W.J. Howey Co. because she neglected to mention the Supreme Court’s requirement of a “contract, transaction or scheme” (quoting Howey itself). Without a contract, transaction, or scheme, there is no “investment contract,” period. This issue has been briefed and argued extensively in other cases, with decisions pending, in the Southern District of New York and the District of Columbia. In those cases, the judges have expressed concerns in open court about the lack of a limiting principle to the current SEC’s expansive jurisdictional claims. The need to prove a contract, transaction, or scheme, neglected in SEC v. Wahi, is one such limiting principle.

Why did Judge Lin miss this point? Probably because the SEC faced no opposition in this case. The defendant defaulted and did not appear. Because it faced no opposition, I would not make much of this SEC “win.” Pay more attention to what’s happening in the SDNY and DC.

None of this is to say that insider trading is good or OK. Insider trading is wrong. But insider trading in commodities that aren’t securities is commodities fraud, maybe wire fraud. It’s not securities fraud, so it’s none of the SEC’s business.

Cornell Law School University of Chicago Law School Northwestern University Pritzker School of Law The Federalist Society Cato Institute The Heritage Foundation U.S. House Committee on Financial Services United States Senate Committee on Banking, Housing, and Urban Affairs U.S. Securities and Exchange Commission