Abandoning the ‘Mosaic Theory’: Why the ‘Mosaic Theory’ of Securities Analysis Constitutes Illegal Insider Trading and What to Do About It


This Note proposes that the mosaic theory is an unlawful method of securities analysis constituting illegal insider trading based on the tipper/tippee theory of liability established in Dirks v. SEC. This Note addresses the meaning and history of the mosaic theory as it has evolved over time and discusses the history of insider trading law in the United States in an effort to understand why the mosaic theory violates those laws. It analyzes the confluence of insider trading law and the mosaic theory, showing why the mosaic theory violates insider trading law. Finally, this Note identifies the costs and benefits of abandoning the mosaic theory in its current form and proposes ways to move forward in the world of securities analysis without the legal risks embedded in the mosaic theory, concluding that financial actors will need to abandon the mosaic theory in order to confidently guard against prosecution for insider trading.


Aaron Davidowitz, mosaic theory, Dirks v. SEC, Securities and Exchange Commission, SEC, securities analysis, securities, insider trading



Aaron S. Davidowitz (Washington University School of Law)



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