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Economics

The Materiality Standard in Insider Trading Prosecutions

Quick fact

In TSC Industries, Inc. v. Northway, Inc. (1976), the U.S. Supreme Court defined materiality as a substantial likelihood that a reasonable shareholder would consider the information important in deciding how to vote—or, in the insider trading context, whether to buy or sell. This same standard is then used to judge insider trading, meaning even a tiny but significant fact can make an insider's trade illegal.

Why this is interesting

You step into a courtroom: the case hinges on a single word—'material.' What if one tidbit of inside information is enough to make the difference between legal and criminal?