Rule 10b-5 (Insider Trading)

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The Illusion of Equality Within the Securities Market with a Focus on Insider Trading

I. Introduction

The market has historically been a male dominated field. Women toiled in the

kitchen while men went to trade in the market. Recently, family issues have received

much attention from politicians and social commentators. The debate has centered, for

the most part, on the decline of “family values” and the commensurate decline of “work

ethic” among participants in the labor market. Although economists have no way of

measuring values or work ethic directly, they may nonetheless be able to find evidence of

changes in values and work ethic to the extent that these changes affect different markets.

When it comes to showing the impact of these family interactions on labor and financial

markets, however, economists for the most part have remained on the sidelines. In this

paper, I bring the family and its influence on the market to the heart of the discussion by

using insider trading as a benchmark to highlight the integral link between the family and

the market.

In the Nineteenth century there had been an ideology of two separate spheres that

existed; one sphere being the family and the other sphere being the marketplace. The

marketplace was thought of as a place to be dominated by men while women tended to

the needs of the family. This dichotomy tended to exclude women from the market while

promising them a central role in the apparently equal domestic sphere. This may no

longer be considered to be true but we do continue to view the family and the market as

two distinct spheres. Also, court decisions seem to inherently adhere to the idea that

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women are not active players in the securities market. This paper will explore how the

marketplace is a place for individualism. Success in the marketplace, notably insider

trading, is best achieved, as Manne set forth, by possessing “male” characteristics. While

court decisions may not decide cases based on gender I will argue that there is still some

bias when it comes to insider trading. The relationships that the court views as

troublesome under Securities and Exchange Commission Rule 10b-5 are often those of

males such as a father and son as opposed to a husband and wife.

II. The Nineteenth Century Ideology of Family and the Market

Historians of the nineteenth century describe an ideology that dominated that

period and divided life into two, separate spheres: home and market. Women were

relegated to the home, with all of its pleasures and limitations, while the market was a

man’s world, also rewarding and constricting in its own ways.1 Much of the struggle of

feminists in the second half of the twentieth century has been to overcome the constraints

of this way of thinking. More than fifty percent of women with young children work

outside of the home today and one even begins to read stories of men who devote their

days entirely to the job of raising their children and keeping house. 2 Yet, the old ideas

about the nature of the market and the home continue to influence how we think about the

world.

1 See generally Nancy F. Cott, The Bonds of Womanhood: “Woman’s Sphere” in New England , 1780-1835

(1977). 2 See Bureau of Labor Statistics, Employment Characteristics of Families: 1996.



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The “market” is an abstraction used to describe people’s economic relation with

one another.3 According to the ideology of separate spheres, the market was a man’s

world. This was so clear to the nineteenth century census takers that they could not even

think of assigning occupations to women. Leonore Davidoff and Catherine Hall describe

the process in nineteenth century England whereby the census came to identify men, and

only men, with particular occupations.4 It did not occur to the census takers that women

might have independent occupations. Observers of the time also noted the woman’s

absence from the market. Thus, the ideology of separate spheres identified men, not

women, with the market.5

The men who traded within the market were, according to the classical

economists, “self- interested people.”6 According to Adam Smith, men act when they

perceive a bargain of any kind….It is not from the benevolence of the butcher, the

brewer, or the baker, that we expect our dinner, but from their regard to their own

interest.7 We address ourselves, not to their humanity but to their self- love, and never

talk to them of our necessities but of their advantages.8

Classical economists did not deny this self- interested market behavior. Instead,

they considered “selfish and calculating” behavior in the market to be wholly

appropriate.9 This was because they saw the market as a means of harnessing self-

3 See Frances Olsen, The Family and the Market: A Study of Ideology and Legal Reform , Harv. L. Rev.

1497, 1502 (1983). 4 See Leonore Davidoff & Catherine Hall, Family Fortunes 229-71 (1987).

5 In reality, women did take part in the market even though it was thought that they should not do so.

6 “Classical economists” is the school founded by Adam Smith. See P.S. Atiyah, The Rise and Fall of

Freedom of Contract 292—323 (1979). 7 Id.

8 Samuel Hollander, Adam Smith and the Self Interest Axiom , 20 J.L. & Econ. 133-139 (1977) (quoting

Adam Smith). 9 Cott, supra note 2, at 64, 76-71.



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interest and turning it into a mechanism for the joint production of goods and services.10

Through bargaining with others, wants on both sides of a transaction are satisfied thus

increasing the public welfare without any need for altruistic feelings towards others.

According to classical economists, the market is also non-hierarchical.11 All men,

regardless of who they are, have wants that they try to satisfy, and all are potential

bargaining partners. Men in the market are not only equal vis-à-vis their potential ability

to satisfy others’ wants, they are also equal in relation to the state.12 As a result, classical

economics says there should not be any state intervention in the market. Indeed, by

assuming a highly competitive marketplace, even bargaining power among individuals

could be seen as equal.13

Under the separate spheres ideology, the home, the family, and women provided a

direct contrast to the autonomous, self- interested nature of men and the market. In fact, a

home was often defined in direct opposition to the market. If the market intruded on the

home in any way, it was not a true home. Thus, John Ruskin wrote,

[Home] is the place of peace….In so far…as the anxieties of the outer life

penetrate into it, and …the outer world is allowed by either husband or wife to cross the

threshold it ceases to be a home; it is then only a part of the outer world which you have

roofed over and lighted fire in.14

The home was identified with women and families just like the market was

identified with men. “The true woman’s place was unquestionably by her own fireside…

10

See Atiyah, supra note 7, at 299. 11

Historians describe the changes experienced in the late eighteenth century and early nineteenth centuries as a move from the patriarchal relations of master and servant to the more formally equal relations of employer and employee in the modern market. See Cott, supra note 2, at 66. 12

See Olsen, supra note 4, at 1502. 13

See Atiyah, supra note 7, at 340. 14

Kate Millet, The Debate over Women: Ruskin vs. Mill, in Suffer and Be Still 121, 130-31 (Martha Vicinus ed., 1972).



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[and] domesticity was among the virtues most prized” in women.15 Unlike men, women

were not supposed to be motivated primarily by their own interest or by the desire to

make money.16 Nancy Cott describes women as having been thought to be

“disinterested” both because they escaped from the competitive economic pressures of

the market and because they were economically dependent on the men of their families.17

“Disinterested,” in this context, meant that they were motivated in accordance with the

interests of other members of their families, not their own.18

Disinterested women were supposed to be ready to “sacrifice everything at the

altar of affection.”19 Eventhough women were rational they were also seen as

sentimental, emotional and as a carer of others. Since women were not expected to be

aggressive or powerful they could not expect to tell others what to do. Instead, they were

expected to influence others by acting appropriately. It was their role to teach men how

to be gentlemen.

Despite the fact that the separate spheres ideology treated the home and the

market as distinct from one another, they were part of a single system. Work simply

became a means to a satisfying life outside of work.20 The family provided a haven for

those who worked in the cold, impersonal market.

Thus, one way in which the relationship between the market and the home can be

interpreted is that the existence of a home – of a “separate sphere” – made it possible for

men to endure their daily life in the market. Another way to understand the relationship

15

Barbara Welter, The Cult of True Womanhood: 1820 -1860 , 18 Am Q. 151, 162 (1966) (describing women’s domestic roles in the eighteenth century). 16

See Welter, supra note 15, at 160: Cott, supra note 2, at 52-53. 17

Cott, supra note 2, at 70-71 18

Id. 19

Cott, supra note 2, at 64. 20

Christopher Lasch, Haven in a Heartless World; The Family Besieged 6-8 (1975).



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between the market and the home, however, is to think of them together as allowing men

to express their whole range of emotions. While men in the market were expected to be

calculating and self- interested, once they returned to their homes their warmer, more

altruistic feelings could be expressed. Even Adam Smith admitted that men experienced

great sympathy for members of their immediate families: “It approaches…. To what he

feels for himself.”21 Within the home, men were allowed to cry, and being “tender-

hearted” at home was by no means considered inappropriate.

The existence of a home different and separate from the market allowed men to

act one way in the market and somewhat different at home. In short, it created more

possibilities for a range of emotions, allowing men to be fuller people than if they were

limited to the emotions and styles of action permitted in the market.

Thus, the existence of a home and women, and their strong associations with

emotion and care for others, allowed the market to continue to exist with only a limited

range of permissible behaviors. Both spheres made it possible for men to be competitive

and self-serving within the market and loving outside of it.22 It also made it possible for

society to accept a market that was self- interested. Without the separate, recognizable

sphere of family, the market would appear reprehensible and indefensible. It is the

existence of the separate sphere along side the market that allows the market to continue

to exist.

21

See Davidoff & Hall, supra note 5, at 534. 22

The market was also associated with the positive value of progress, self-reliance, and modernization. Olsen, supra note 5, at 1500. These positive values had the effect of making the market ideologically viable. See Cott, supra note 2, at 69.



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III. The Family

In contrast to the market, in which universal selfish behavior is supposed to result

in the betterment of society, the family has generally been expected to be based less on

individualism.23 The good of all is not achieved by each family member’s pursuit of

individual goals, but rather by sharing sacrifices among family members. At one time the

husband was thought to control his wife; and children were, and to an extent still are,

expected to obey their parents for the sake of a better society, parents have often been

expected to sacrifice their immediate individual interests for the sake of their children.24

Altruism was supposed to be the central tenet of the family much like individualism was

supposed to be the tenet of the marketplace. At one time, for example, the father’s social

role entitled him to control the children. If the mother were to leave him and take the

children with her, the courts would ordinarily be expected to force her to return them to

him; for courts to refuse to do so would be considered state interference with the family.25

Neither husband nor wife were expected to pursue self- interests over interests of the

others. Sharing and self-sacrifice were considered “appropriate behavior.”26

The theory of the private family, like free market theory, includes the assertion

that particularized adjustments of seemingly unfair or inhumane results will not actually

serve anybody’s long-run interests.27 One attack made upon ad hoc adjustments by the

23

See J. Locke, An Essay Concerning the True Origin, Extent and End of Civil Government, in Social Contact 33 (E. Barker ed. 1960) (parents’ duty to care for children). 24

Id. 25

See People ex rel. Olmstead v Olmstead, 27 Barb 9, 31 (N.Y. Sup. Ct. 1857) (granting father habeas corpus remedy against mother and mother-in-law to obtain custody of child on ground that “the paramount legal right of the father to the custody and education of his child can be interfered wit by a court of equity only where he has been at fault in bringing about the separation.”) 26

See L. Alcott, Little Women (Boston 1968). 27

See Emily Martin, The Egg and the Sperm: How Science has Constructed a Romance Based on Stereotypical Male -Female Roles, in Feminism and Science 103 (Evelyn Fox Keller & Hellen E. Longino eds., 1996).



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state is based on the delicate quality of family relations.28 Adherents of this position

argue that what might seem to be a minor change in the law could have disastrous

unforeseen consequences. Thus, a member of England’s House of Lords argued in 1838

that a bill allowing mothers to visit children living with their legally separated fathers

could “ruin half the families in the kingdom.”29 It was said to be “dangerous…to tamper”

with the “delicate” principles of family law.30

IV. The Securities Market as the Ideal Market

The idea of the ideal market has influenced the interpretation of the securities

markets so that it is understood as having the characteristics of the ideal market. This is

especially true within insider trading laws. As in the market of separate spheres,

securities traders owe each other no duties. They act autonomously, motivated by their

own self- interest. As with the ideal market, this pursuit of self- interest is seen as

ultimately beneficial to everyone. Additionally, like the ideal market of the separate

spheres ideology, the securities market is also seen as populated by males.31 Finally,

when court cases raise issues about conduct within the market they are decided in a

manner that is consistent with the ideal market. When market participants could be

understood to act out of any of a number of motives, courts tend to see them as acting

from personal self- interest, much like an ideal market.

28

Id.at 106. 29

44 Parl. Deb. (3d ser.) 772, 789 (1838) (statement of Lord Wynford). 30

Id.at 788 (statement of Lord Brougham). 31

Women do play a role in the securities market. Thirty-nine percent of securities industry professionals and 28% of managers and officers are women. See Jon Birger, Hiring Women: Ladies Who Power Lunch Make Gains in Securities , Crain’s N.Y. Bus., Juen 16, 1997, at 25.



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Within insider trading, United States v. O’Hagan32 is the most recent court

decision on Rule 10b-5 of the Securities and Exchange Act of 1934.33 However,

O’Hagan did not address the issue of how broadly the statute could be applied within

insider trading. As with the market in general, traders in the securities market act

autonomously from one another. As a general rule, there are no duties owed to the other

traders under Rule 10b-5. The Supreme Court made this rule very clear in Chiarella v.

U.S.34 Chiarella, a “mark-up man” for a financial printer, had figured out how to

decipher crucial information purposely left temporarily blank in documents for corporate

takeover bids.35 This is the central case that tries to confine the doctrine of insider

trading to the market. The SEC argued that, because he had information that other

traders did not possess, he was trading on inside information in violation of Rule 10b-5.

The court rejected this argument. The court held that Chiarella owed no duties to the

target company or to its shareholders. As to both, he was a complete stranger. It said:

“No duty could arise from petitioner’s relationship with the sellers of the target company’s securities, for petitioner had no prior dealings with them. He was not their agent, he was not a fiduciary, and he was not a person in whom the sellers had placed their trust and confidence. He was, in fact, a complete stranger who dealt with the sellers only through impersonal market transactions.”36

Participants in the securities market are considered strangers to one another in the same

way as participants in the ideal market.

The same theme emerges in the cases dealing with insiders’ liability to option

traders under Rule 10b-5. Many courts have held that insiders who trade in corporate

32

117 S. Ct. 2199 (1997). 33

15 U.S.C. 78j(b) (1994). 34

445 U.S. 222 (1980). 35

See Id.at 224. 36

Id.at 232-33



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shares do not owe a duty to those who trade in options.37 Like the printer in Chiarella,

option traders are seen as “strangers” to those insiders who have traded in corporate

stock. Since they trade in different markets, there is no real connection between a

defendant’s trading and any losses that the plaintiff may have suffered.38 As strangers,

there is no duty owed to option traders by the insiders.

Securities traders who are “strangers” to others are free to pursue their own self-

interest. In Dirks v. SEC, the Supreme Court emphasized both the inevitability and the

desirability of self- interested behavior.39 As part of its decision, the court rejected the

position put forth by the SEC that the mere possession of nonpublic information was

enough to impose an obligation to disclose or abstain from trading.40

Despite this, the Dirks court understood market efficiency as dependent on the

analysts’ work in ferreting out information that might emerge more slowly. It noted,

“The analysts’ work redounds to the benefit of all investors.”41 The court recognized that

people in the market do not work to obtain exclusive information purely out of the

goodness of their hearts. They work because to do so produces personal profit; they can

sell via market letters any new information for which clients are willing to pay.42 If they

could not profit from the information, they would, according to the court, be less willing

to search for it. Finding liability under Rule 10b-5 for anyone who had traded on

material, non-public information would mean that the analysts would be unable to profit

37

See H.T.Mill, Enfranchisement of Women , in J.S. Mill & H.T. Mill Essays on Sec Equality 89, 99-100 (A. Rossi ed. 1970). 38

See C. Lasch, Haven in a Heartless World 36 (1977). 39

See, e.g ., Easton, Feminism and the Contemporary Family , in a 8 Socialist Rev., May-June 1978, at 11. 40

See Id. 41

See Pound, The End of Law as Developed in Juristic Thought (pt. 2), 30 Harv. L. Rev. 201, 203, 210 (1917) (discussing theory that law gradually progresses toward a system of individual liberty in which “rights, duties and liabilities flow from voluntary action”). 42

See H. Clark, The Law of Domestic Relations in the United States § 7.1 at 220 (1968).



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from their efforts. The court said, “Imposing a duty… could have an inhibiting influence

on the role of market analysts, which … is necessary to the preservation of a healthy

market.”43 As in the ideal market, the Dirks court’s image of the securities market is that

it is a place where traders act to advance their own interests and, in doing so, help the

general good.

The courts see the profit motive as so powerful that they are willing to assume it

is the major motive in many cases that may otherwise be seen as altruistic.44 The

Supreme Court strengthened this assumption in Dirks by linking the test for breach of a

fiduciary duty in violation of the insider trading prohibition to “whether the insider

personally will benefit, directly or indirectly, from his disclosure.”45

The assumption, that people within the market act from motives of personal gain,

is illustrated in the work of Henry Manne. Manne emphasizes the benefits to society in

general that will accrue from self- interested behavior on the part of each individual.46

Manne’s work carries this one step farther, however, portraying the markets as sites for

male activities. This creates yet another similarity to the ideal market. What this means

is that when Manne thinks about the securities market, he thinks about it as made up of

people with stereotypically male characteristics. Like the market of separate spheres

ideology, Manne views the securities market as a man’s domain. Because we already

have an ideal type of market in mind with these characteristics, it is that much easier for

us to accept Manne’s position.

43

Elaboration of the meaning of “altruism.” See Kennedy, Form and Substance in Private Law Adjudication , 89 Harv. L. Rev. 1685, 1717. 44

See, e.g., McGuire v. McGuire, 157 Neb. 226, 238, 59 N.W.2d 336 (1953). 45

Dirks, 463 U.S. at 662. 46

Henry Manne, Insider Trading and the Stock Market at 1-15 (1966).



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These claims about Manne’s work can be illustrated by an analysis of the portion

of his book Insider Trading and the Stock Market that discusses insider trading.47 He

argues that entrepreneurs play a special, innovative role within the modern corporation.

Manne says that the question is how to compensate the entrepreneur’s work. According

to Manne, neither salaries, profit-sharing plans, nor bonuses provide appropriate

compensation.48 He does say, however, that insider trading “meets all the conditions for

appropriately compensating entrepreneurs.”49 It allows the sale of information about the

particular innovation without requiring that the insider be given a proprietary interest in

the information. The sale price would be in relation to the expected value of the

information. As a result, Manne sees the obtaining of exclusive information in insider

trading as the appropriate way to compensate the entrepreneur. So, he would argue

against court regulation of insider trading.

So that he can be happy that the entrepreneurs would consider the ability to trade

on inside information as appropriate compensation, Manne developed a profile of the

entrepreneur. The profile of the entrepreneur is much like that of the man in the market

of the separate spheres ideology. Manne does not describe entrepreneurs in any detail,

but his brief description runs as follows: an entrepreneur is self-confident, but not a good

organization man.50 In this way the entrepreneur, is portrayed as a loner, an independent

actor. Relationships with others are not crucial to the entrepreneur’s activities. In fact,

while Manne recognized that entrepreneurs might occasionally be found in “older-style”

47

Manne, supra note 36, at 131-158. 48

See Id. at 134-35 49

Id.at 138. 50

See Id.at 141.



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family businesses, there were clearly not the settings in which he expected the

entrepreneur to be located. A feature of the entrepreneur is that he is male.

If we think of the stereotypes of men and women that are part of the separate

spheres ideology, the entrepreneur, as described by Manne, is a man. Men work alone

while women work within networks and to preserve relationships.51 Men are

traditionally thought of as rough and self-confident, while women are shy and insecure.

Manne sees the entrepreneur inhabiting the work world of men: corporate managers,

lawyers, investment bankers, scientists. Even today, men dominate the securities

industry. The final proof that Manne’s entrepreneur is male comes from Manne’s

understanding of his motivation. Entrepreneurs, Manne asserted, are attracted to those

positions offering them the “greatest opportunity… to make large, indefinite gains.”52

Unlike women, who are traditionally believed to be motivated by love or beauty,

Manne’s male entrepreneur is motivated by the stereotypical male objective: money. It is

this that makes insider trading, with its potential for large gains, the appropriate form of

compensation. Manne’s entrepreneur is the classic profit-maximizing male.53

Thus, Manne’s work clears up the picture of the securities market as an idealized

market in line with the separate spheres ideology. The securities market, like the

idealized market of classical economics, is seen as a place where people do not owe

duties to others, where people act in pursuit of their own self- interest (to the ultimate

good of all), and where stereotypical male traits can be expected. Furthermore, Manne’s

51

See discussion of the ideal woman. 52

Manne, supra note 35, at 155. 53

See, e.g., SEC v. Materia, 745 F.2d 197, 200 n.3 (2d Cir. 1984) (concluding that the wife neither knew nor should have known that the information conveyed to her was confidential).



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work is that much more believable to us because it fits within our idealized image of how

a market ought to operate.

These images of the market also influence the courts as they decide cases. In

Dirks, the court held that there was no breach of fiduciary duty, and therefore no

violation of Rule 10b-5, unless the breach was for “personal gain.”54 Personal gain could

have been interpreted to mean monetary gain, but such a narrow interpretation would not

have been consistent with the understanding of how men act within the market. They do

not act out of the typical “womanly” motivations of friendship, love, or affection.

Instead, separate spheres ideology says that they act from self- interest. Consistent with

this, the courts understand men in insider trading situations to be acting so as to advance

their own interests. Tips that might otherwise have appeared to be passed on primarily

out of friendship for the recipient are found to create liability because they are understood

as having been made out of profit motives.

V. Family Structure Influence on the Market

Although people considered the market and family to be in opposition to each

other, they also believed that the strength of each sphere was dependent upon the

existence of the other and that each sphere fed off the other. The marketplace was

acceptable in part because it was not the only sphere; there was also the family. The idea

of the private family reassured people that certain human values would not be lost to the

market. The family offered males an altruistic motive for carrying on their individualistic

struggles in the marketplace. The family gave men a reason to be selfish and self-

interested for the greater good of the family. It also offered men compensation for their 54

Dirks v. SEC, 463 U.S. 646, 659 (1983).



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suffering in the debasing world and thus reduced resistance to the increasing

dehumanization of the market.55

The existence of the free market made the constraints of family life more

acceptable to both men and women. The uncertainty made the marketplace a scary

alternative to the home and thus tended to encourage women to being consigned to the

family. This also gave men justification for excluding women from the male sphere. At

the same time, the freedom of the marketplace, whether actual or imaginary, made it

easier for men to tolerate the confining aspects of family life.

So, the Chestman court represents two ways in which the idea about family

influenced the development of Rule 10b-5. The family established a border to the market

that resulted in a limited reach of Rule 10b-5. This doesn’t mean that family members do

not engage in the market. It means that the ideals of both spheres do not conform well in

the eyes of the court. United States v. Chestman56 also showed how the family and the

market have different characteristics. The duties owed to the family were not the same as

those owed to other market players.

The line between family and market does not exist in a static manner. Instead, it

is constantly being recreated. The courts are part of this defining process. In Chestman

case, the court found no liability under Rule 10b-5 because the duties that family

members owed to one another were not the type of duties on which one could build an

insider trading case. Reviewing a series of cases will help to identify the current

definitions of family and market.

55

See J. Mitchell, Woman’s Estate 152-58 (1971). 56

947 F.2d 551 (2d Cir. 1991).



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One of the few cases that, like Chestman, involve a discussion of family is SEC v.

Switzer.57 In Switzer, a corporate executive was overheard at a track meet talking to his

wife about an out of town meeting to discuss what to do with a corporate subsidiary. The

eavesdropper, Switzer, then traded on the information that he had heard, and spread the

word to some of his friends. The court held that the defendants had not engaged in

insider trading. Rule 10b-5 would be violated only if a corporate insider had passed on

the information in breach of a fiduciary duty, including benefiting pecuniarily from the

tip. According to the court, the executive, George Platt, had not breached a duty in

relaying to his wife the information that he was considering liquidating the company.58

Instead, the court saw the discussion as a family matter. His wife would be

leaving town for a week the day after their discussion and they needed to discuss their

family’s plans for that week. Since they had children, it was their practice to try to

arrange for one parent to be in town while the other was away.59 In this way, passing the

information on to his wife takes on a family tone instead of business. Similarly, the court

describes the conversation between husband and wife as one in which she is performing

as a good wife:

“When G. Platt appears distracted, it is not uncommon for his wife to inquire of him what is on his mind. On these occasions, he will talk to her about his problems, even though she does not have an understanding of or interest in business matters. On the day of the track meet, Phoenix [the corporation in questions] was weighing upon the mind of G. Platt …prompting G. Platt to talk to his wife about it.”60 It is her job to provide solace and comfort to her husband as he deals with the

troubles of the world. The interaction between husband and wife is seen as a family

57

590 F. Supp. 756 (W.D. Okla. 1984). 58

See Id.at 766. The case could have gone either way. 59

See Switzer, 590 F. Supp. at 762. 60

Id. The court referred to Mrs. Platt either by “wife” or “Linda.” She was not called either “Mrs. Platt” or “L. Platt.”



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issue. Both Chestman and Switzer show the relationships between spouses as focused

primarily on family, not business, issues.

But, in other cases where familial relationships are involved, the courts have been

more likely to see the issues as relating to business instead of family. U.S. v. Reed 61

involved a discussion between father and son of the affairs of a corporation of which the

father was the chief executive. The son then traded on the information that he had

learned. The court permitted the insider-trading suit to go forward against the son. This

case could have been understood in a manner very similar to Switzer since the father was

discussing business with a family member. Gordon Reed, the father, was known to

discuss his business problems regularly with his son, not unlike the discussions that G.

Platt had with his wife.62

The Reed court, however, did not portray the situation as involving relief from

stress. Instead, it categorized the relationship as a business one. Although it said that the

father-son relationship was “particularly close,” it also described them as having

frequently discussed business affairs in an atmosphere in which it was understood that the

son would respect the father’s confidences.63 In fact, the SEC had initially alleged that

the business confidences passed both ways, creating an image of the two advising each

other on business.64 To further emphasize the business aspects of the relationship, the

Chestman court retrospectively limited Reed “to its essential holding: the repeated

disclosure of business secrets between family members…”65

61

601 F. Supp 685 (S.D.N.Y. 1985). 62

See Id.at 690. 63

Id. 64

See Reed, 601 F. Supp. at 690. 65

United v. Chestman, 947 F.2d 551, 569 (2d. Cir. 1991).



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In contrast to Switzer, the court treated Gordon Reed as if he had been using his

son as a business consultant, not as an emotional therapist. This characterization was

furthered by the Reed court’s description of the son as the president of a family-owned

land development company.66 This made him out to be more a businessman than a son.

The court doesn’t elaborate on what type of business Mrs. Platt was involved in, but it is

unlikely that she was a full- time housewife. The Switzer court’s failure to describe her

outside interests made it easier to see her as a confidant, wife, and mother, and harder to

view her as a business consultant. Similarly, the Chestman court’s discussion of Susan

Loeb made her out to be a full-time homemaker – not a consultant.

Another case that falls on the business side of the line is Aschinger v. Columbus

Showcase Co.67 this case involved two brothers, each of whom had separately sold his

shares back to the corporation when he retired. The defendant, Carl Sr., received a

significantly higher price for his shares and, as Chairman of the Board, was also

responsible for the negotiations on the corporation’s behalf with the plaintiff, Ralph.

Ralph claimed that the defendant had superior knowledge as to the shares’ value at the

time that the buy-back of Ralph’s shares was occurring. The court found that the

defendant did not breach any fiduciary duties there were owed to Ralph. It described

Ralph as an active participant in the business of the corporation, a director, and the family

member in charge of labor negotiations.68 As a result, it found that Carl Sr. had not

violated Rule 10b-5. Aschinger viewed the brothers in terms of their business

relationship and not in terms of their family relations.

66

See Reed, 601 F. Supp. at 690-91. 67

934 F.2d 1402 (6th

Cir. 1991). 68

See Id.at 1408.



19

These decisions by the court indicate that this may be because the courts conceive

family as involving heterosexual, marital relations. Cases like Chestman and Switzer are

seen as involving this core familial relationship, whereas Reed does not. Relations

between brothers, or between fathers and sons, are more easily characterized as market

relations probably because they involve men. This goes along with the idea that males

dominate the market. Thus, the cases that involved the transfer of business information

between men are more easily seen as involving market relations that those that involve

the transfer of information among members of a couple. These are characteristics

associated with the family. Family, according to these cases, involves traditional marital

relations. Aschinger is an example of how other relations are easily characterized as

business, even when they involve members of the same family.69

These cases, involving brothers, or father and son could have been interpreted as

showing either the closest relations outside of the market – family – or as the economic

connections between the participants. By putting them into the context of the market, the

courts are defining both market and family. Market relations focus on economic

concerns and take place between parties that do not concern personal ties between them.

Family relations involve a woman whose role is to perform wifely functions. From the

cases above, family relations mean the relations between a couple in a marriage.

VI. Strategy for Improving the Status of Women in the Market

Strategies for improving women’s status in the market tend to attack the market

either for being too much like the family or for being too little like the family. The

69

See also, SEC v Trikilis, 1992 WL 301398 (C.D. Cal July 28, 1992). (tipping of employee to her aunt and found liable for Rule 10b-5 violation).



20

market is said to be too much like the family in that the inequality of the family is

reproduced in the market: the sexual identities that people develop in families and the

social meanings attached to maleness and femaleness are carried into the marketplace and

undermine its supposedly egalitarian character.70

The market is not like the family in the sense that it does not reproduce the

altruism present in the family. Critics often consider women to be particularly victimized

by market individualism. They criticize the social irresponsibility and selfishness of the

market; reforms are intended to make the market more responsive to human needs.

These reforms call for an adjustment of how the market accounts for people’s family

lives rather than for a radical separation between the market and the family.

Within insider trading, reforms would be aimed at finding equal footing in court

decisions. This is a curious priority since it would mean that women would actually be

convicted of Rule 10b-5 violations more often. As evinced by the cases above, women

are not “players” within the market.

One solution to help women become more involved in the market is to make the

market less like the family. Reformers generally conceive of anti-discrimination law as a

strategy to enable women to participate in the market as freely and effectively as men do.

For women to participate in the market at all, it is necessary first to change the state laws

that made women objects in the market or mere agents of their husbands or that barred

them from the market.71 The further project of making women equal participants in the

70

See M. Barrett, Women’s Oppression Today 205-06 (1980). 71

See e.g., Act of Mar. 22, 1872, 1871 Ill. Pub. Laws 578 (guaranteeing all persons freedom in the selection of an occupation).



21

market is the subject of continuing political and legal battles.72 The market, despite its

egalitarian theoretical premises, reproduces the inequality of the family.73 The above

cases are a small sample of the inequality of the court’s view of men and women. This

reproduction takes place for a number of reasons and through a number of mechanisms.

Efforts to combat it are thus also varied in their intentions and their effects.

One reason women are disadvantaged in the market is that some market actors

intentionally discriminate against them. Before such discrimination was outlawed, there

were many efforts to justify it. The justifications ranged from protecting the family74 and

women from the corruption of the market,75 to protecting men and the market itself from

the ill-effects said to result from women’s participation in the market.76 These four

justifications are not generally accepted anymore for excluding women from working in

the market, but they do continue to operate to rationalize differential treatment of men

and women.

While these justifications may not explain the discrimination present in insider

trading it does help to explain the patterns of inequality and sexual segregation that

continue in the market. Thus, it could be said that the market reproduces the inequality of

the family but denies this unequal discrimination against women. Rather, unequal results

in the market are explained as the effect that growing up and living in families has upon

behavior of men and women in the market.

72

See generally, Women and Philosophy: Toward a Theory of Liberatio n (C. Gould & M. Wartofsky eds. 1980). 73

See C. MacKinnon, Sexual Harassment of Working Women 18-21 (1979). 74

Proponents of “Separate Spheres”: thought that the family would suffer if they would have participated in the market. The opportunities would tempt the women into other roles besides being a mother and a wife. See W. Wandersee, Women’s Work and Family Values: 1920 -1940 , at 67, 70 (1981). 75

Women were thought to be less physically fit and healthy as men. See, e.g., Muller v Oregon, 208 U.S. 412, 421 (1908). 76

Women were thought of as worse workers than men because they were too weak for many jobs and were not educated. See C. MacKinnon, supra note 73, at 10-12.



22

There are two general mechanisms by which discrimination operates. First,

differing family obligations and expectations about men and women prejudice women.77

Second, the particular upbringings girls receive in families and the roles women have

played in the past do in fact leave women ill prepared to succeed in the market, as it is

now organized.78

An important aspect of both mechanisms is that the market was constructed

primarily of men, and the roles available in the market as well as the rewards associated

with the market were a result of society. It is the interaction between women’s behavior

and the particular demands of the market that results in discrimination against women.79

The way the courts focus on relationships within insider trading is strange

considering that such focus is usually reserved for the family context. In Chiarella and

Dirks the court says that there must be a relationship between the insider trader and the

firm in which he is trading on. But, the court does not set out the requirements for the

establishment of this relationship.

Many anti-discrimination provisions can be explained or justified as efforts to

allow women to be assimilated into the free market. Within the securities market insider

trading regulations must try to protect women from discrimination, there must also be a

concerted effort to make the market more like the free market ideal. Three of the four

classic reasons for intentional discrimination against women – protecting women from

the corruption of the market, insulating the family from market pressures, and protecting

77

See Frug, Securing Job Equality for Women: Labor Market Hostility to Working Mot hers , 59 B.U.L. Rev. 55, 56-58 (1979) (observing that, because women have been expected to assume most parental responsibilities, they must often work on a part-time basis, take jobs with little responsibility, and compromise employment opportunities). 78

See Baker, Women in Blue -Collar and Service Occupations, in Women Working , at 339, 357-359 (A. Stromberg & S. Harkness eds. 1978). (saying that many forms of training are unavailable to women). 79

See Frug, supra note 77, at 55, 56-58.



23

men’s position in the marketplace – are factors that the ideal free market actors would not

take into account in purely profit-motivated activity. Only the fourth factor – that women

are, in general, less valuable or less productive in the market – provides a market

justification for intentional discrimination. However, all these concerns seem to be weak

arguments for discriminating against all women. So, requiring market players and the

court to lose their biases may be a way to make the actors and the court rational players.

So how would we get rid of this bias? My solution would be to have an

affirmative action plan for women in the court system and the market to eliminate

discrimination against women. First, a target or quota may be set to the number of

women who would be in violation of insider trading laws when brought up on charges by

the Securities and Exchange Commission. This type of a quota system may serve as an

avenue for gender-neutral decisions since judges would be more inclined to treat women

as players within the market and not merely as housewives. Furthermore, even when

affirmative action is intended to help individual women for prior discrimination or to

create a sexually integrated marketplace by rewarding women beyond what they deserve,

it is conceived of as a temporary relief measure.80 It may be seen as a brief departure

from the free market system, a departure designed to correct a malfunction caused by

irrational, intentional discrimination and to restore free-market, profit-maximizing

rationality.81

Systems that promote facially neutral policies that serve to handicap women are

sometimes supported as efforts to purify the free market. For example, under the

80

If male-dominated professions are sexually integrated then women will have a fairer chance in market competition. 81

Before there are changes in the market against discrimination it might be done it must be achieved within the family. See Frug, supra note 77, at 55-61.



24

principles in Griggs v. Duke Power Co.,82 courts have eliminated minimum height,

weight, and strength requirements that have had a disproportionate impact on women and

that cannot be demonstrated to be job related. The fact that the requirements are not job

related suggests that from a free market perspective they are irrational. Courts have also

begun to use anti-discrimination laws to provide relief for victims of sexual harassment.

The major benefit of reforms that attempt to integrate women in the free market is

their tendency to promote freedom and equality for women. Such reforms help to free

women from economic dependency on men, expand the career options available to

women, and increase the salaries and advancement possibilities of certain groups of

women workers.83 Further, laws requiring equal treatment tend to undermine demeaning

and debilitating stereotypes of women and their roles.

This may be applied to insider trading as well. While the cases above do not lay

out minimum requirements for insider trading laws, they do seem to inherently judge the

ability and roles of women within the marketplace. The cases above are evidence that the

market is a place for men, but not for women, and that the treatment of women who end

up in the market are portrayed of as innocent victims of their husbands’, brothers’, or

fathers’ trading. The women themselves did not know or understand the market. They

were simply relying on the men in their lives to guide them. Any type of reform in

insider trading will not equalize women with men. But, what reforms may do is

encourage market individualism. Affirmative action does not end the actual

subordination of women in the market but it seems as though, instead mainly benefits a

small percentage of women who adopt “male” roles. Meanwhile, it legitimates the

82

401 U.S. 424 (1971). See Frug, supra note 77, at 103. 83

Fair employment laws and equal pay statutes, however, have not yet resulted in higher pay for women across the board. See Id . at 55 n.2



25

continued oppression of most women: the reforms maintain the status quo by

particularizing and privatizing inequality and encouraging women to blame themselves

for their failures in the market.84

A quota system promotes market individualism and promises each individual

woman that she can succeed in the market if only she chooses to apply herself. It

obscures for women the actual cause of the oppression and treats discrimination against

women as an irrational and capricious departure from the normal objective operation of

the market, instead of recognizing such discrimination as a pervasive aspect of the two-

sphered system. The reforms reinforce free market ideology and encourage women to

see individualistic, inward looking solutions to social problems.

A second common way to understand anti-discrimination law is that it moderates

the effects of the free market in order to promote women’s equality.85 If intentional

discrimination is considered rational but socially irresponsible, laws against such

discrimination can be seen as an effort to counteract the individualism of the market and

to force market actors to behave more responsibly.86 Similarly, affirmative action can be

considered more than just an effort to get rid of irrational discrimination by the court; it

can be viewed as a method of combating discrimination or even as an attempt to

restructure the workplace.87

These reforms share the advantage of the welfare state. Like other welfare state

provisions, anti-discrimination laws can promote more than mere formal equality. By

84

See, Freeman, Legitimizing Racial Discrimination Through Anti discrimination Law: A Critical Review of Supreme Court Doctrine , 62 Minn. L. Rev. 1049 (1978) (arguing that racism and antidiscrimination law work to legitimate the inferior position of racial minorities). 85

See, Fried, In Defense of Preferential Hiring, in Women and Philosophy at 309-319. 86

See, Connecticut v. Teal, 102 S. Ct. 2525, 2534-35 (1982) (rejecting evidence of substantial minority employees as defense against employment discrimination charge). 87

See, Ginger, Who Needs Affirmative Action , 14 Harv. C.R.-C.L. L. Rev. 265, 27075 (1979).



26

recognizing women’s subordination, the law can account for and counteract

discrimination. Because affirmative action acknowledges the common themes in the

oppression that each woman suffers, it encourages women to recognize their shared

interests and can serve to empower women as a group.88 The reforms compensate

women for their unequal family roles, improve women’s market opportunities, and

spread to employers and to the government some of the costs of bearing and raising

children, costs that would otherwise fall disproportionately on women. Finally, by

acknowledging the unfair treatment accorded women, anti-discrimination laws can

counteract the tendency of the court to lay the blame for a woman’s failure in the

marketplace on the woman herself rather than on a systematic bias against women.

Although a quota system may promote greater equality, its efforts to do so may be

inadequate. Affirmative action helps only a small group of successful women but fails to

change the basic pattern of sexually segregated employment and thus ensures that most

women will remain relegated to supporting actors instead of players in the market.

Critics may say that affirmative action thus creates another reason for women to blame

themselves when they fail in the marketplace. Yet the success of a few women is better

than having all women continuing to be oppressed.

VI. Conclusion

Today, the image of the free market is on where everyone starts out on equal

footing. Through hard work and dedication, players and leaders emerge who reap the

rewards. However, as this paper points out, the image of the market is one distorted by

the dichotomy of the family and the market. Insider trading law continues to view market 88

See, C. MacKinnon, supra note 73, at 116-18.



27

relations very narrowly. The conservative view of these laws must be more than just

merely from a male perspective.

It is true that the difference between men and women are as natural as hunger,

prayer and fighting. However, just because these ideas have existed throughout time

does not mean they cannot be changed. The court does not realize that they are simply

perpetuating the idea of this dichotomy when ruling on insider trading violations. We

may never be able to eliminate the inherent bias that seems to exist in jurisprudence. It

may be possible that if we did life would be too homogenous. However, by constantly

investigating gender biases within the market new definitions of the market and family

may emerge. Additionally, it would force the courts to consciously scrutinize gender-

based stereotypes. The woman’s place may no longer be considered to be just home and

family but we do continue to view a female as something sharply distinct from the

market. To tamper with this delicate dichotomy is the only way to bring about the

change that is necessary to affect the visions of the social universe



Documents

Rule 10b-5 (Insider Trading)