Bloglines user
bill.giltner@gmail.com has sent this item to you.
| |
| By Gordon Smith on Securities Regulation Steve Bainbridge has a very interesting post on what he calls "the oddest insider trading allegation I've ever seen in 20-odd years of following the development of insider trading law." This would be a great exam question: grand juror leaks information about accounting fraud at Bristol-Myers Squibb to an associate at Goldman Sachs, who trades on the information. Is the grand juror guilty of insider trading? The only possible hook here is the misappropriation theory, which "holds that a person commits fraud 'in connection with' a securities transaction, and thereby violates § 10(b) and Rule 10b-5, when he misappropriates confidential information for securities trading purposes, in breach of a duty owed to the source of the information." (O'Hagan) Steve rightly observes that a grand juror is not a fiduciary. I just did a quick Westlaw search to confirm and found no cases in which grand jurors were considered fiduciaries ... and why would they be? Nevertheless, grand jury proceedings are widely acknowledged to be confidential. Is that enough of a basis for insider trading? Steve points to U.S. v. Chestman, where the Second Circuit referred to necessity of having a "fiduciary duty or similar relationship of trust and confidence." Is a grand juror's relationship to the grand jury similar to a fiduciary relationship in any way that might be meaningful to insider trading? This is a tough question, since the misappropriation theory itself might have a somewhat attenuated connection to what we commonly think of as insider trading. Consider the other fact situation implicating the Goldman Sachs associate in this case. He was part of a group that made profits from trading based on information stolen from Merrill Lynch and Business Week. Even if the employees of Merrill and McGraw-Hill who provided the valuable information did not themselves buy or sell securities, they could be liable for violations of § 10(b) and Rule 10b-5 under the misappropriation theory. Sure, a grand juror is not an employee, but extending the misappropriation theory to grand jurors doesn't seem like much of a stretch. (Why the misappropriation theory should be part of the law of § 10(b) and Rule 10b-5 still eludes me. I am in a very small minority here, but I still wish Justice Powell had lasted one more year on the Court, so all of this could have been avoided!) Finally, Steve wonders whether the SEC is relying on Rule 10b5-2(b)(1), which provides that "a 'duty of trust or confidence' exists in the following circumstances, among others: 1. Whenever a person agrees to maintain information in confidence ...." We could use some judicial help on Rule 10b5-2, which was designed to provide more guidance in misappropriation cases. Yet, here we stand, mystified. This could be very interesting, indeed. | | | | |
SPONSORED LINKS
YAHOO! GROUPS LINKS
No comments:
Post a Comment