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corporate announcements without a peep from the SEC.
    William L. Cary, an academic appointed by President John F. Kennedy to run the commission, was somewhat of a renegade among market experts. Yes, people were complaining about an unequal playing field, but the prevailing wisdom among many academics was that insider trading was good—or at the very least produced a societal benefit in the form of more efficient markets (since prices would more quickly reflect all available information, including insider information). If the markets were so rigged, as the complaints suggested, then why were people continuing to snap up stocks more than ever before?
    Such were some of the arguments made by a prominent law professor at the time, Henry Manne, now dean emeritus of George Mason University, in his book Insider Trading and the Stock Market. In it he stated convincingly (or convincingly enough that regulators used it as a rationale for their lack of enforcement for decades) that without insider trading, asset prices would lag behind true investor sentiment, thus distorting the market.
    Cary, however, didn’t see the benefits and in fact took great offense at the notion that corporate insiders were using their positions for personal gain. Even more, he argued insider trading violates the fundamental basis of the markets in the aftermath of the 1933 and 1934 securities acts: that information must be disclosed in an equitable manner to all investors .
    With that Cary took the first giant leap by any federal law enforcement official to make insider trading a crime. He began to expand the SEC, populating its ranks with like-minded legal experts largely from academia who disagreed with Manne’s doctrine about the market efficiency of insider trading. He then began to use existing law more broadly, leaning heavily on one part of the SEC’s founding mandate, known as Section 10-b of the Securities Exchange Act of 1934.
    The securities laws of 1933 and 1934 were revolutionary in their scope in that for the first time the activities of Wall Street were being monitored by a federal agency with the power to sanction fraudsters. As sweeping as the laws were, they stopped short of giving the SEC the authority to put people in jail.
    But the law wasn’t without its teeth, miscreants could be fined, banned from the securities industry or from serving as an officer or director of a public company. Section 10-b of the act was particularly onerous because it covered just about every activity from outright theft to manipulating stocks, and as Cary would argue, insider trading as well. The rule was broad and open to interpretation, he believed. It allowed the commission to regulate just about anything it considered fraud if it involved “deceit or fraud” in connection with the sale of a security .
    Three decades went by before the SEC began using 10-b as a weapon to crack down on insider trading, and Cary thought it was way overdue. In doing so, he made history, becoming the first SEC chairman to state openly what is now the accepted wisdom among securities regulators: Insider trading erodes public confidence in the markets, and it’s something the commission must do everything in its power to eradicate.
    The first case brought by the SEC under Cary’s new mandate involved a board member of a public company who inadvertently tipped off a friend and business partner about a market-moving corporate event. What made the case against the brokerage firm Cady, Roberts & Co. so significant involved the SEC’s rationale in bringing action: insiders with exclusive access to nonpublic information must either “disclose” that information to the broader market, or “abstain” from trading on it.
    The information, in this case, involved a decision by the company, Curtiss-Wright Corp., to cut its dividend, with the likely fallout of lower stock prices in its aftermath. One of the company’s board members, a