Misappropriation Theory | Brian JM Quinn | November 15, 2013


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Misappropriation Theory

Original Creator: Brian JM Quinn Current Version: Brian JM Quinn Show/Hide

Classical insider trading theory generates liability for insiders, temporary insiders, and tippees in the event any of them trade in the stock of the corporation to which they own a fiduciary duty while in possession of material inside information.

However, this classical theory has an obvious limitation. Under the classical theory of insider trading, there is no liability if the insider uses the material inside information of the corporation to trade in the stock of ANOTHER corporation and not the corporation to which the insider has a fiduciary duty.

The following cases lay out the courts' response to the limitations of the classical insider trading theory while holding on to its fiduciary duty core.


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  1. 2 Show/Hide More U.S. v. O'Hagan
    Original Creator: Brian JM Quinn Current Version: Brian JM Quinn

  2. 3 Show/Hide More SEC v. Dorozhko
    Original Creator: Brian JM Quinn Current Version: Brian JM Quinn
    Like tipper/tippee liability, there are limits to use of misappropriation theory. In Dorozhko, the Second Circuit extends misappropriation theory in a novel way. Dorozhko involves a Ukrainian hacker who steals inside information and then trades on it. The lack of a fiduciary relationship to the source of the information should mean there is no liability under misappropriation theory. However, here the court agrees with the SEC's theory and extends liability but in a novel way, suggesting that fiduciary relationships are not actually required in order to establish liability under 10b-5.

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June 14, 2016

insider trading corporate

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Brian JM Quinn

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