Here's what the U.S. Supreme Court thinks, (in another case):
Under the "traditional" or "classical theory" of
insider trading liability, a violation of Sect. 10(b) and Rule
10b-5 occurs when a corporate insider trades in his corporation's
securities on the basis of material, confidential information he
has obtained by reason of his position. Such trading qualifies as
a "deceptive device" because there is a relationship of trust and
confidence between the corporation's shareholders and the insider
that gives rise to a duty to disclose or abstain from trading.
Chiarella v. United States, 445 U.S. 222, 228-229. Under the
complementary "misappropriation theory", a corporate "outsider" violates Sect. 10(b) and Rule 10b-5 when he misappropriates confidential information for securities trading purposes, in breach of a fiduciary duty owed to the source of the information, rather than to the persons with whom he trades.
(b) Misappropriation, as just defined, is the proper subject of a
Sect. 10(b) charge because it meets the statutory requirement
that there be "deceptive" conduct "in connection with" a
securities transaction. First, misappropriators deal in
deception: A fiduciary who pretends loyalty to the principal
while secretly converting the principal's information for
personal gain dupes or defrauds the principal. A company's
confidential information qualifies as property to which the
company has a right of exclusive use; the undisclosed
misappropriation of such information constitutes fraud akin to
embezzlement. Cf. Carpenter v. United States, 484 U.S. 19, 25-27.
Deception through nondisclosure is central to liability under the
misappropriation theory.
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THE SHAREHOLDERS GET SCREWED. |
