13 Hofstra L. Rev. 127 (1984-1985)
Insider Trading and Investment Analysts: An Economic Analysis of Dirks v. Securities and Exchange Commission

handle is hein.journals/hoflr13 and id is 135 raw text is: INSIDER TRADING AND INVESTMENT
ANALYSTS: AN ECONOMIC ANALYSIS OF
DIRKS V SECURITIES AND EXCHANGE
COMMISSION
Daniel R. Fischel*
INTRODUCTION
Raymond Dirks is an investments analyst who persuaded his cli-
ents to sell their shares in Equity Funding of America after he re-
ceived information from officials of the firm that the shares were
overvalued because of a massive fraud. For his efforts, he was cen-
sured by the Securities and Exchange Commission for violating the
general antifraud provision of the securities laws, Section 10(b) of
the Securities Exchange Act of 19341 and Rule lOb-52 promulgated
thereunder. The censure was upheld by the Court of Appeals for the
District of Columbia.3 In Dirks v. SEC,4 however, the Supreme
Court reversed Dirks' censure. Dirks, the Court stated, was a stran-
ger to Equity Funding, with no pre-existing fiduciary duty to its
shareholders.5 Nor could Dirks be considered a tippee who had a
duty to disclose the information publicly, because the insiders who
provided the information about the fraud received no money or per-
sonal benefit and did not intend to make a gift of valuable informa-
tion to Dirks.' Instead, their motivation was a desire to expose the
fraud.17 Thus, the Court concluded, Dirks was not 'a participant
after the fact in [an] insider's breach of fiduciary duty' 8 and had
* Professor of Law, University of Chicago Law School. The author thanks Peter Aran-
son, Walter Blum and Geoffrey Miller for helpful comments on an earlier draft.
1.  15 U.S.C.  78(b) (1976).
2. 17 C.F.R.  240.10b-5 (1984).
3. Dirks v. SEC, 681 F.2d 824 (D.C. Cir. 1982), rev'd, 463 U.S. 646 (1983).
4. 463 U.S. 646 (1983).
5.  Id. at 665.
6.  Id. at 667.
7. Id. at 667.
8. Id. (quoting Chiarella v. United States, 445 U.S. 222, 230 n.12 (1980)).

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