The Temptation to Trade on Confidential Information Everyone loves a sure thing. And in the case of insider trading, the profits may be just too tempting. Two cases filed last week by the Securities and Exchange Commission epitomize just how quickly some have jumped at the opportunity to profit from confidential information, despite the risks of being discovered and the subsequent costs. In one case, two information technology workers learned that their company was involved in merger negotiations when one helped the chief executive figure out how to attach confidential deal documents to an e-mail. The other involved a husband learning about a confidential acquisition from his wife, who is a lawyer, after an event with a client's general counsel was canceled on short notice. In both situations, the defendants bought stock in the companies involved in the deals the day after learning the confidential information, showing virtually no compunction about violating the law. Nor does it appear they did much to conceal their actions - they used accounts in their own names to buy and sell shares. Did the desire for quick profits simply cloud their better judgment, or is insider trading something people do not consider to be wrongful? The S.E.C. noted that the two technology workers, Blake R. Wellington and Daniel J. Vance, went to great lengths to finance their trades. Mr. Wellington took out a $25,000 loan from an online lending site, an expensive transaction given the high interest rates charged by these lenders. Mr. Vance borrowed from his 401 (k) account, and sold personal computer equipment and his truck to raise the money for his stock purchase. The merger was announced two weeks after their purchases, producing a total profit of about $72,000. Under their settlement with the S.E.C., they were required to return all their gains and had to pay an additional $79,000 in penalties and prejudgment interest. Whatever vehicle Mr. Vance bought to replace his truck is probably gone now, too. In the second case, the S.E.C. charged James Balchan with insider trading when he bought shares in National Semiconductor. He learned confidential information about a merger involving the firm after his wife told him that a law firm event involving the company's general counsel had been canceled because he was tied up in negotiations with Texas Instruments. The next morning, Mr. Balchan bought 2,000 shares of National Semiconductor, and another 1,000 shares a few days later, reaping a profit of about $29,000 when the acquisition was announced. Mr. Balchan's wife is a partner in the Houston office of a national law firm that did work for National Semiconductor, so any information she had about the deal was confidential. Whether Mr. Balchan had the same duty of confidentiality is a different question, however, because he was not an employee of the law firm. In its complaint, the S.E.C. contends that Mr. Balchan breached a duty of trust and confidence to his wife because he was aware of her obligation to a client of the firm. That theory of insider trading may be a bit of a stretch under the law. The United States Court of Appeals for the Second Circuit held in United States v. Chestman that "marriage does not, without more, create a fiduciary relationship." In that case, the court overturned an insider trading conviction when a husband traded on information he leaned from his wife about a takeover of her family's company. The S.E.C. adopted Rule 10b5-2 in 2000 to address family situations, taking the exact opposite approach of the Chestman decision. The rule provides that there is a duty of trust and confidence "whenever a person receives or obtains material nonpublic information from his or her spouse, parent, child or sibling." Mr. Balchan settled with the S.E.C., agreeing to disgorge his profit and pay a penalty plus interest of $30,615. So the question of whether it was a violation of securities law for the husband to trade based on confidential information received from his wife will not be tested in this case. The two cases raise questions about our society's attitudes toward insider trading. Why are citizens so eager to trade on information to make a quick, if rather modest, profit when the prohibition against insider trading is fairly clear and widely known? Unlike hedge fund managers who face pressure to produce profits on a daily basis, these defendants were handed an opportunity to trade and did so almost immediately. The recent crackdown on insider trading has certainly been hard to miss in the news media. While some have questioned the scope of the insider trading prohibition, there is a general public perception that it is wrongful. Stuart P. Green, a Rutgers law professor, and Matthew B. Kugler, a psychologist, conducted a survey about when trading on confidential information should be punished. Their article in The Fordham Urban Law Journal concluded that it was "only when the trader obtained the confidential information in some presumably illicit manner, such as by appropriating it from his employer or client, that our subjects regarded it as clearly worthy of prohibition and censure." Insider trading is a violation that involves cheating by taking advantage of access to confidential information along with a strong dose of greed to overcome the usual moral constraint against engaging in illegal conduct. There is no easily identifiable victim in insider trading, so it can be easy to justify it to oneself because no individual is actually losing money in the process, just the faceless mass of traders in the market. The fact that some people appear to be willing, and even eager, to trade on confidential information when presented the opportunity shows that sometimes any constraints on acting illegally can be easily overcome. That question hardly seems to matter.