78 B.U. L. Rev. 13 (1998)
United States v. O'Hagan: Agency Law and Justice Powell's Legacy for the Law of Insider Trading

handle is hein.journals/bulr78 and id is 35 raw text is: ARTICLE
UNITED STATES v. O'HAGAN: AGENCY LAW AND
JUSTICE POWELL'S LEGACY FOR THE LAW OF INSIDER
TRADING
A.C. PRrrCHARD*
INTRODUCTION     ......................................................................   14
I. THE CLASSICAL THEORY: CHIARELLA AND DIRKS ..................... 18
A. United States v. Chiarella: Requirement of a Duty ................. 18
B.   SEC v. Dirks: Duty Acquired as a Tippee ......................: .... 20
C.   Puzzles of the Classical Theory .................................... 22
1. No Reliance in Open-Market Transactions ................... 22
2. No Fiduciary Duty to Prospective Shareholders ............... 26
3. Transformation of a Breach of a Tipper's Duty of Con-
fidentiality Into a Breach by the Tippee of a Duty of
Disclosure to Shareholders ...................................... 27
4. Causation ..................             ................ 27
5. No Fiduciary Duty to Bondholders ............................ 28
6. The Corporation's Property Rights in Information ............ 28
II. THE MISAPPROPRIATION THEORY: CARPENTER AND O'HAGAN ..... 30
A. Background of the Misappropriation Theory ..................... 30
Visiting Assistant Professor, Northwestern University School of Law, Spring 1998;
Assistant Professor, University of Michigan Law School, Fall 1998; Council of Scholars,
Foundation for Economic Education. The author was employed as Senior Counsel, Office
of the General Counsel, United States Securities and Exchange Commission when this Ar-
ticle was written and assisted the government in preparing its case in United States v.
O'Hagan. The Securities and Exchange Commission, as a matter of policy, disclaims re-
sponsibility for any private publication or statement by any of its employees. The views
expressed herein are those of the author and do not necessarily reflect the views of the
Commission, the Department of Justice, or of the author's former colleagues. See 17
C.F.R.  200.735-4(e)(2) (1995). Additionally, certain matters discussed in this Article
may be issues in litigation in which the Commission appears as a party or otherwise, and
no statement made in this Article should be considered indicative of the views or positions
that might be taken by the Commission in any such litigation. I would like to thank Mi-
chael Dreeben, Paul Gonson, Joan Larsen, David Levine, Richard Levine, Ronald Mann,
Chris Mixter, Randy Quinn, David Ruder, Jake Stillman, Steve Thel, and Elliot Weiss for
helpful discussion and comments on earlier drafts. Richard Walker gets special thanks for
comments above and beyond the call of duty.

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