The Most Far-Reaching Securities Fraud in History? Trump, Tariffs, and Securities Law

Whatever one may think of the Trump administration’s recent shifts in tariff policies, they sure provoked wild swings in securities’ prices worldwide. About ten days ago, President Donald Trump signed an executive order imposing tariffs ranging from 10% to 46% on various US trading partners, knocking down stock prices across the globe and triggering fears of a recession. A week later, he signed another order bringing those rates to 10% for three months—except for China, whose unwillingness to cooperate was rewarded with a whopping 125%, then 145% rate— thereby provoking an immediate surge in stock prices.

The substantial agitation in stock markets caused by these changes in tariff policy created fantastic trading opportunities for anyone who had prior knowledge of the forthcoming policy changes. Trump himself was very much aware of this, as he enthusiastically announced to his followers on his social media platform Truth Social on Wednesday 9 April that ‘THIS IS A GREAT TIME TO BUY!!!’ (emphasis his) just a few hours before announcing the new tariff policy.

This quickly prompted Senator Adam Schiff, followed by others, to ‘[call] on Congress to investigate whether President Donald Trump engaged in insider trading or market manipulation’. The intuition behind this initiative is straightforward: if Trump and his entourage traded in securities before each policy announcement, this behaviour, if substantiated, would look an awful lot like insider trading, which involves trading on material nonpublic information. Furthermore, deliberately sending stock prices crashing and then soaring may constitute market manipulation, which again could secure significant profits for those involved.

So far, there is no indication that President Trump or his team engaged in securities fraud. However, ongoing debates on the issue prompted us to examine the legal merits of these claims, as calls for investigations have not been accompanied by a clear legal analysis of the hypothetical facts on which they rely. As we next argue, any action based on market manipulation rules would likely be doomed to failure. Conversely, a case could be made that President Trump and his team may have violated US insider trading rules.

Let us start with market manipulation. The argument goes that the Trump administration may have manipulated markets through a series of erratic tariff decisions, which sent securities prices on a wild rollercoaster worldwide, whereas Trump’s aforementioned post on Truth Social was intended to push prices up. In this scenario, Trump and his team may have sold just before announcing increased tariffs—which caused a market collapse—and bought just before announcing a tariff reduction—which caused prices to rise again.

Does this constitute unlawful stock market manipulation? Even if the facts were substantiated, the US Securities & Exchange Commission (SEC) may struggle to bring a successful case against Trump or his team. Rule 10b-5, enacted by the SEC under the Securities Exchange Act of 1934, prohibits ‘any untrue statement of a material fact’, whereas Section 9 of the same Act makes it unlawful to take action ‘for the purpose of creating a false or misleading appearance of active trading in any security other than a government security, or a false or misleading appearance with respect to the market for any such security’.

Neither Trump nor his team appears to have misled the market about the tariffs to be enacted, nor does Trump’s post on Truth Social seem to contravene these provisions. Simply put, the Trump administration did not lie about its forthcoming policies. Admittedly, the tariff announcements themselves may be considered manipulative, if it could be shown that their purpose was to manipulate stock prices. As this would imply that the purpose of the Trump administration’s policies was to manipulate markets rather than carry out a legitimate trade policy, the SEC is unlikely to venture into such territory.

On to the suspicions of insider dealing. Knowing in advance how the tariff decisions would affect stock prices, Trump & team had the opportunity to engage in insider dealing by trading on the forthcoming changes in tariffs before they were revealed to the public. Likewise, President Trump’s own statement on Truth Social, whose expected effect was a positive impact on prices, may be considered as material nonpublic information, and he may have traded in anticipation of its publication. The STOCK Act of 2012, which specifies the scope of Rule 10b-5 (the main provision governing insider dealing in the US), does state that various public officials (including the President, the Vice-President, members of Congress, and employees of the executive branch) owe a duty towards the US government and citizens not to trade on material nonpublic information gained from the performance of their official responsibilities, besides a series of transaction reporting requirements.

While no sanction for insider trading has, to the best of our knowledge, ever been imposed under the STOCK Act, President Trump and his team may theoretically be found in breach of its provisions, subject to having traded on the aforementioned information. At the same time, one might argue that President Trump—besides considerations linked to presidential immunity—could not ‘gain’ information about policy changes, as this information resulted from his own action and was therefore ‘created’ by him.

What about the rest of the world? In theory, President Trump and his team might have violated the market abuse rules set out by the European Market Abuse Regulation (MAR) (which prohibit market manipulation and insider trading) by trading in or impacting the price of securities trading on European markets. The scope of market manipulation rules under MAR’s article 12 and 15 is broader than that of US rules: any ‘false or misleading signals as to the supply of, demand for, or price of, a [security]’ or action securing its price ‘at an abnormal or artificial level’ can be considered as manipulation even in the absence of intention. Their violation is therefore more likely. Likewise, the extensive reach of MAR’s insider trading rules under Articles 7 and 8, which make it unlawful to trade on any material non-public information whatever its source, leaves the door open to prosecution on that basis.

Securities laws in various other jurisdictions may also have been violated, potentially making Trump and his team’s hypothetical transactions over the past few days one of the most far-reaching securities law violations in history. It remains to be seen whether any violation actually took place and, in the affirmative, whether market authorities, starting with the SEC, will take action.

Paul Oudin is a Departmental Lecturer in Law & Finance at the University of Oxford and an External Professor at Ecole Polytechnique (Paris).