A daily look at legal news and the business of law:

Credit Default Swap Insider Trading Trial Starts

On Wednesday, the trial of a Deutsche Bank employee accused of insider trading began. What makes the case noteworthy is the financial instrument to which the allegedly inside information applied: credit default swaps. The Securities and Exchange Commission's prohibition on insider trading bans sharing important, non-public information about "securities." The defense asserts that CDS are not securities, merely private contracts between financial players outside the SEC's jurisdiction. If that argument wins the day (though it seems like a stretch to me), add yet one more reason to the towering pile of why CDS need regulation.

The SEC's allegations in the case, if true, otherwise seem pretty straightforward. The Deutsche Bank (DB) employee told a customer that a company was going to issue more debt, a move that would have made the company's CDS more expensive. By knowing the non-public information in advance, the client was able to buy CDS before the price spike, and sell them afterward, pocketing a profit of $1.2 million. The client thanked the employee for the "nice little kiss." Later, when he heard the SEC was investigating insider trading, he "panicked" and called the employee to ask if their phone conversations had been recorded. The client explained that call by saying he has memory issues and was "seeking information that might help him recall the transactions," according to The Wall Street Journal.

Although the employee and client are also trying to defend the information sharing as merely part of the "free flow" of information between bond buyers and sellers, it's hard to see how selectively passing a valuable tip to a favorite client represents freely flowing information. Deutsche Bank has not been accused of wrongdoing, and has been cooperating with the SEC.

FDA to Spas: Don't Tell Customers Fat Dissolving Shots Are Safe and Effective

In our weight-obsessed, short-cut-hungry, convenience-loving culture, nothing seems to sell better than instant, pain-free ways to shed pounds, fat, cellulite, etc. That's despite the fact that the core advice on how to lose weight -- eat appropriate portions of a balanced range of low-processed foods and exercise regularly -- hasn't changed in generations. This week, the Food and Drug Administration took on one of the latest incarnations of the get slim quick scheme: "fat dissolving" shots offered by spas. The FDA's warning letters note that it has seen no evidence the shots are safe or effective.

Upon Reconsideration, Virginians Decide It's OK To Walk Around Naked In Your Own House

The ABA Journal reports that late last year, a Virginia judge convicted Erick Williamson of misdemeanor indecent exposure because two women complained they saw him naked when they looked through the window or doorway of his house. Williams appealed, contesting the judge's conclusion that he'd intentionally exposed himself to the women. Given the distance at which they saw him -- some 80 feet -- and the implausibility that the women had made eye contact with him (Williams's attorney asserted that when someone sees a naked man, the last thing they look at are his eyes), a jury took less than 20 minutes to reverse the conviction.

And in the Business of Law...

Above the Law notes that Goodwin Proctor is adding insult to injury. The firm is now on a hiring spree after laying off 59 associates in 2009, but it isn't interested in rehiring its former employees, many of whom still don't have jobs. A couple of former employees responded to the want ad Goodwin published, but were told that despite what the posting said about the job requirements (which, on paper, they would have met), the firm was looking for people more senior than they were.

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