Misappropriation: A General Theory of Liability for Trading on Nonpublic Information
![handle is hein.journals/hoflr13 and id is 109 raw text is: MISAPPROPRIATION: A GENERAL THEORY
OF LIABILITY FOR TRADING ON
NONPUBLIC INFORMATION
Barbara Bader Aldave*
The more one ponders the reasoning in Chiarella v. United
States' and Dirks v. SEC,2 the less one is satisfied with the Supreme
Court's explanation of when and why Rule 10b-53 prohibits trading
in securities on the basis of material nonpublic information.
Chiarella and Dirks establish that a person violates Rule lOb-5 by
buying or selling securities on the basis of material nonpublic infor-
mation if (1) he owes a fiduciary or similar duty to the other party
to the transaction; (2) he is an insider of the corporation in whose
* Joe A. Worsham Centennial Professor of Law, The University of Texas. B.S., 1960,
Stanford University; J.D., 1966, University of California (Berkeley). I am very grateful to
Terri Eaton and Kathryn Tullos for their assistance in the preparation of this Article.
1. 445 U.S. 222 (1980).
2. 463 U.S. 646 (1983).
3. Rule lOb-5 was promulgated under § 10(b) of the Securities Exchange Act of 1934,
15 U.S.C. § 78j(b) (1982). Section 10(b) provides:
It shall be unlawful for any person, directly or indirectly, by the use of any
means or instrumentality of interstate commerce or of the mails, or of any facility of
any national securities exchange-
(b)To use or employ, in connection with the purchase or sale of any security
registered on a national securities exchange or any security not so registered, any
manipulative or deceptive device or contrivance in contravention of such rules and
regulations as the [Securities and Exchange] Commission may prescribe as neces-
sary or appropriate in the public interest or for the protection of investors.
Rule lOb-5, 17 C.F.R. § 240.10b-5 (1984), provides:
It shall be unlawful for any person, directly or indirectly, by the use of any
means or instrumentality of interstate commerce, or of the mails, or of any facility
of any national securities exchange,
(a) To employ any device, scheme, or artifice to defraud,
(b) To make any untrue statement of a material fact or to omit to state a
material fact necessary in order to make the statements made, in the light of the
circumstances under which they were made, not misleading, or
(c) To engage in any act, practice, or course of business which operates or
would operate as a fraud or deceit upon any person, in connection with the purchase
or sale of any security.](ViewImageLocal?handle=hein.journals/hoflr13&div=10&collection=&method=preview&ext=.png&size=3)
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Misappropriation: A General Theory of Liability for Trading on Nonpublic Information
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