Insider Dealing

The issues

The use of business information falls into two groups. One is perfectly legal but the other is prohibited by government legislation.

There is no argument, legal or moral, against the gathering of information regarding economic trends in the market or in regard to a specific organisation and then operating in accordance with that information. Businesses survive on the gathering of data and their decisions will be based on the information received.

The problem comes when such information is received from sources which are confidential and which are only available to a few people, either on account of their position or as a result of their enjoying a special relationship with the source of the information. The selective availability of this "insider data" places anyone who possesses it at an advantage over other participants in the market who do not have access to it.

The United Kingdom, in common with many other countries, has legislated against the practice of insider dealing.

The Jewish Perspective

The rule of dina demalkhuta dina - law of the land is law - is applicable here. Jewish law says that the law of the land is law unless it contradicts Jewish law. It is accordingly binding.

The Torah does not recognise the concept of caveat emptor ("let the buyer beware") and places a responsibility on the seller to ensure that the buyer has full information regarding the goods it sells. If this is not done, the seller is guilty of fraud; the transaction is an erroneous sale (mekach ta'ut) and is nullified. On these grounds it may be argued that the purchase of goods which are not what they appear to be, in view of the unequal information available to all participants in the market, would constitute fraud and an erroneous sale.

If inside information is bought from somebody who had access to it, the situation is not unlike that of receiving stolen goods. Jewish law forbids the buying of stolen goods. As the Rambam says, this "strengthens the hand of evildoers since, if he would not be able to sell the goods, the thief would not steal". The buyer is thus creating a market which encourages theft. Accordingly the use of inside information may transgress the laws of fraud, onaah and mesayeh ledavar aveirah - acting as an accomplice to a forbidden act (in this case, theft).