In the 1980s, the Securities and Exchange Commission stepped up its enforcement of insider trading violations. This article examines, by means of an intensive case study, the intricacies involved in proving both civil and criminal insider trading charges. The case offers important insights about the way that insider trading cases are perceived, handled, and adjudicated; it also provides empirical evidence regarding the considerable difficulty of litigating a white-collar offense. The accused can afford effective and astute legal representation; the offense is essentially financial, with no eyewitness testimony or visible victims to take the stand; and the defendants are well-respected, established members of the community.
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References
1.
1. U.S., Congress, House, Committee on Energy and Commerce, Insider Trading and Securities Fraud Enforcement Act of 1988, Report no. 100-910, 100th Cong., 2d sess., 1988, p. 8.
2.
2. Eric Shine, “A Little Bell Set Carl Karcher Probe in Motion,”Los Angeles Times, 15 Apr. 1985.
3.
3. Mary Ann Galante, “Karcher: Cloudy Chapter in Horatio Alger Success Story,”Los Angeles Times, 15 Apr. 1988.
4.
4. Gary G. Lynchet al., “Recent SEC Enforcement Developments,” in Insider Trading, Fraud, and Fiduciary Duty under the Federal Securities Laws (Washington, DC: American Law Institute, American Bar Association, 1989), 1:508.
5.
5. David A. Vise and Steve Coll, Eagle on the Street (New York: Charles Scribner's Sons, 1991), p. 260.
6.
6. Charges against Margaret Karcher were dropped in March 1989.
7.
7. A margin account allows investors to buy securities on credit as long as they maintain a minimum amount of equity in their account. If the securities in the account drop in value, the brokerage firm may request that the investor provide more equity; this is known as a margin call.
8.
8. Declaration of Carl Leo Karcher to the Securities and Exchange Commission, filed 9 Aug. 1988, para. 5.
9.
9. Mary Ann Galante, “Judge Rules Karcher Son Violated Stock Sale Laws,”Los Angeles Times, 13 Sept. 1988.
10.
10. Ibid.
11.
11. Theodore A. Levine, Arthur F. Mathews, and W. Hardy Callcott, “Current Legal Developments Affecting Insider Trading Enforcement Actions and Litigation, 1988-1989,” in Insider Trading, Fraud, and Fiduciary Duty, 1:5.
12.
12. Personal interview.
13.
13. Personal interview.
14.
14. Personal interview.
15.
15. Personal interview.
16.
16. Personal interview.
17.
17. 459 U.S. 375, 384 (1983).
18.
18. See John W. Bagby, “The Evolving Controversy over Insider Trading,”American Business Law Journal, 24:571, 606-7 (1986).
19.
19. Francis C. Dane and Lawrence S. Wrightsman, “Effects of Defendants' and Victims' Characteristics on Jurors' Verdicts,” in The Psychology of the Courtroom, ed. N. L. Kerr and R. M. Bray (New York: Academic Press, 1982).
20.
20. Personal interview.
21.
21. Dane and Wrightsman, “Effects of Defendants' and Victims' Characteristics.”
22.
22. Personal interview.
23.
23. Personal interview.
24.
24. Cited in Martin F. Kaplan, “Cognitive Processes in the Individual Juror,” in Psychology of the Courtroom, ed. Kerr and Bray.
25.
25. Personal interview.
26.
26. Susan P. Shapiro, Wayward Capitalists: Target of the Securities and Exchange Commission (New Haven, CT: Yale University Press, 1984).
27.
27. Mary Ann Galante, “Carl's Jr. Chief Accountant Charged with Stock Fraud,”Los Angeles Times, 17 Feb. 1989.
28.
28. Personal interview.
29.
29. Personal interview.
30.
30. Personal interview.
31.
31. Personal interview.
32.
32. Personal interview.
33.
33. David Greenwald, “Karcher Denies Telling His Children to Sell Their Stock,”Orange County Register, 21 Mar. 1989.
34.
34. Mary Ann Galante, “Tentative Settlement in Suit against Karchers,”Los Angeles Times, 21 Mar. 1989.
35.
35. Personal interview.
36.
36. Mary Ann Galante, “Karchers Settle Insider-Trading Case with Fine,”Los Angeles Times, 25 July 1989.
37.
37. Shapiro, Wayward Capitalists.
38.
38. U.S., General Accounting Office, Securities Regulation: Efforts to Detect, Investigate and Deter Insider Trading (Washington, DC: General Accounting Office, 1988).
39.
39. U.S., Department of Justice, Bureau of Justice Statistics, Special Report: Robbery Victims (Washington, DC: Department of Justice, Apr. 1987).
