The Bank Bailout: A License for Sovereign Securities Fraud

Abstract

This Article demonstrates that, pursuant to recent bank bailout programs, the United States Department of the Treasury has the motive and opportunity to trade in bank securities while in possession of material, nonpublic information. The Article analyzes whether the current legal and regulatory scheme prohibits insider trading by the Treasury and concludes that the Treasury could proceed largely unchecked. The Article argues that permitting the Treasury to engage in insider trading - even for the benefit of the taxpayers - undercuts the purposes of the bailout and should be inhibited. The Article evaluates several possible solutions and makes a two-part recommendation: (1) the imposition of an ethical wall between the persons making the investment decisions and the Treasury; and (2) the establishment of an investment plan that divests the Treasury of discretion over investment decisions.

Keywords: Securities, Insider Trading, Bank Bailout