Regulators who do not know history are destined to repeat it. This pattern may be playing out again. In the 1980s, federal prosecutors vastly stretched the reach of the federal mail and wire fraud statutes, using a novel theory that it reached not only deprivations of property but also of the citizen’s political and civil rights. Prosecutors alleged that citizens had a right to an honest government devoid of conflicts of interest. The tactic worked for a time, and some prominent politicians went to prison. But then the rubber band snapped, and in McNally v. United States, 483 U.S. 350 (1987), the Supreme Court rejected the theory in its entirety.

The U.S. Securities and Exchange Commission’s (SEC) long and successful campaign against insider trading has been legally predicated on two words—“deceptive device”—in Section 10(b) in the Securities Exchange Act. In terms of its legal authority, the SEC has little else to rely on, as insider trading is nowhere defined in federal legislation.