Legalizing Insider Trading

The column “A Scapegoat That’s Ready for Pasture� (Commentary, June 17) presented an absurd argument for legalizing insider trading. The assertion made by the authors, Bruce Fein and Edwin Meese III, that corporate insiders in possession of material non-public information ought to be free to capitalize on that knowledge, cries out for repudiation. They argue that there is no difference between an insider trading with his company’s own shares and any commercial transaction where buyers and sellers are inherent adversaries.

Fein and Meese totally ignore the fact that a corporate insider trading in shares of his own company is not entering into a transaction with some unrelated third party under conditions of caveat emptor , as their oversimplified examples seem to imply. Quite to the contrary, when a corporate insider buys shares in the company which employs him, he is purchasing those shares from a fellow shareholder, a “partner� so to speak, to whom he owes a continuing fiduciary duty.

As one who twice voted for Ronald Reagan, I was continually embarrassed during Meese’s tenure as attorney general by his repeated professional ineptitude and ethical oversights. In this article, he again displays both shortcomings. His call for legalized insider trading is an open invitation for corporate insiders to commit fraud against their shareholders.

GEORGE MICHAELIS

President, Source Capital Inc.

Los Angeles