October 10, 2012

Second Circuit Clarifies Current Insider Trading Law

Summary: Persons receiving inside information can be liable for securities fraud even if they are not corporate insiders and owe no direct duty to the source of the information. Last month, the Second Circuit reiterated how the misappropriation theory of insider trading applies to those receiving material, non-public information, more commonly known as tippees. In SEC v. Obus, the court stated that a hedge fund employee and principal, as tippees, could be liable for violations of the insider trading laws if they knew, or should have known, that the tipper breached a duty to his employer in passing along the tip.

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