A Critical Analysis of Misappropriation Theory in Insider Trading Cases

Under the present judicial interpretation of federal securities law, an individual is prohibited from trading on non-public information that has been misappropriated in contravention of a fiduciary duty. Trades made using non-public information that has not been misappropriated are not prohibited by...

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Bibliographic Details
Published in:Business ethics quarterly 1992-10, Vol.2 (4), p.465-477
Main Author: Salbu, Steven R.
Format: Article
Language:English
Subjects:
Common law
Defendants
Efficient markets
Fraud
Information theory
Insider trading
Legal duty
Misappropriation
Plaintiffs
Trade legislation
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Summary:Under the present judicial interpretation of federal securities law, an individual is prohibited from trading on non-public information that has been misappropriated in contravention of a fiduciary duty. Trades made using non-public information that has not been misappropriated are not prohibited by Rule 10b-5, promulgated under the Securities and Exchange Act of 1934. The current requirement of misappropriation to trigger Rule 10b-5 liability creates a gap that permits transactions that are both ethically and economically undersirable. Judicial or legislative reforms are recommended to close the gap and help ensure the fairness and efficiency of securities markets.
ISSN:1052-150X
2153-3326
DOI:10.2307/3857583