The government must show that the trader breached a duty arising from a relationship of trust and confidence.  In other words, the insider must have “information . . . because of a fiduciary or other similar relationship of trust and confidence” to the counterparty (under the classical theory) or source of the information (under the misappropriation theory).1  

Enforcement authorities have taken the position that an oral promise by an officer or director not to trade on information provided so that (s)he could prepare for a board meeting suffices to establish a relationship of trust and confidence.2

Under Rule 14e-3, trading while in possession of material, non-public information (MNPI) about a tender offer is prohibited regardless of the existence of a pre-existing duty.3

Notably, the term “in connection with the purchase or sale of a security” of Rule 10b-5 has been interpreted very broadly, and courts have found that it does not necessarily require that the securities transaction caused harm to the other party in the trade.  Rather, any harm to a third party that had a relationship to a securities transaction would be sufficient to satisfy the requirement.4


1 See Tr. of Jury Charge Proc. at 54-56, United States v. Blaszczak, No. 1-17-cr-00357 (LAK) (S.D.N.Y. Apr. 27, 2018).

2 See, e.g., SEC v. Cooperman, 243 F. Supp. 3d 597 (E.D. Pa. 2017) (settled insider trading enforcement action resulting in payments of approximately $1.8 million in disgorgement; $400,000 in prejudgment interest; $2.8 million in penalties).

3 See United States v. O’Hagan, 521 U.S. 642, 645 (1997).

4 See id. at 655, 661.


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