(Fixes typo in last sentence)
By Jonathan Stempel
March 1 (Reuters) - Three months after the U.S. Supreme Court upheld his decision in a major insider trading case, a federal judge called on the new Congress to pass a law that simplifies and broadens the definition of when trading on confidential information is illegal.
U.S. District Judge Jed Rakoff in Manhattan said the United States has “fallen behind” Europe in failing to recognize that insider trading should be defined by statute, not through “judge-made” law that creates unnecessary uncertainty.
“Something that is simpler and broader would be advantageous,” Rakoff said on Wednesday at a securities litigation conference at the New York City Bar. “A statutory definition would be much preferable.”
The Supreme Court ruled on Dec. 6 that a gift of confidential information that enables friends and family to profit could violate securities laws, even if there were no tangible benefit such as cash given in return.
That upheld a decision Rakoff had written in July 2015 for a federal appeals court in California, where he was temporarily sitting.
Rakoff on Wednesday said that as the scope of insider trading has expanded over time, “ever more complicated theories have had to be spun” to explain why activity that went beyond “obvious cheating” should be illegal.
He said prior bills in Congress to define insider trading drew “vigorous” resistance from the U.S. Securities and Exchange Commission, in part because any definition might be too narrow.
Appointed to the bench by President Bill Clinton, Rakoff has been a thorn for the SEC in high-profile cases.
He rejected a settlement in 2009 with Bank of America Corp for concealing losses at Merrill Lynch, before later approving a revised accord that he called “half-baked justice.”
Rakoff rejected a Citigroup Inc settlement in 2011 in a mortgage fraud case, though he was later overturned.
In his speech, Rakoff spoke approvingly of the European Union’s approach to insider trading, with its goal of ensuring equal access to information, and allowing punishment of those who “ought” to know their trading is wrongful.
“Because the EU approach focuses not on fraud but on equality of access,” Rakoff said, “it has virtually none of the difficulties that plague U.S. law.”
Rakoff briefly mentioned the Supreme Court’s upholding of his decision in the California case, Salman v United States.
“I don’t know why I‘m familiar with that case,” he said, drawing muffled audience laughter. (Reporting by Jonathan Stempel in New York; Editing by Leslie Adler)