Misappropriation TheoryInsider Trading Under Rule 10b-5: The Theoretical Bases for Liability
Willis W. Hagen II, 44(1): 13–41 (Nov. 1988)
After briefly discussing the development of insider trading law, this Article analyzes the fiduciary duty theory, the concept of a temporary insider, and the misappropriation theory. It examines two, diametrically opposed positions that the law could take under section 10(b) and rule 10b-5: (i) to impose liability whenever anyone intentionally uses misappropriated, nonpublic information to purchase or sell securities or (ii) to impose liability only when an insider breaches a fiduciary duty in acquiring material nonpublic information that is used in connection with the purchase or sale of securities.
Misappropriation Theory Liability Awaits a Clear Signal
Jay G. Merwin, Jr., 51(3): 803–23 (May 1996)
In United States v. Bryan, 58 F.3d 933 (4th Cir. 1995), the Fourth Circuit broke ranks with its sister circuits by rejecting the misappropriation theory of securities fraud liability under rule 10b-5 of the Exchange Act. After more than fifteen years of applying the misappropriation theory in civil and criminal enforcement actions, courts have yet to define with precision and predictability the range of relationships that can be breached to produce the predicate fraud for securities fraud liability under the theory. The split among the circuits calls for resolution by the Supreme Court. ( Editor's note : See United States v. O'Hagan, 521 U.S. 642 (1997)).