United States v. O’Hagan case brief summary
521 U.S. 642
PROCEDURAL POSTURE: Petitioner sought review of the judgment of the United States Court of Appeals for the Eighth Circuit reversing all of respondent's convictions for securities fraud.
OVERVIEW: Respondent was a partner in a law firm which represented a company regarding a potential tender offer for the common stock of another company. During the representation, respondent purchased call options for the other company's stock and sold them for a significant profit. After the Securities Exchange Commission initiated an investigation into respondent's transactions, a jury convicted respondent of securities fraud.
HOLDING:
On writ of certiorari, the Court held that criminal liability under § 10(b) of the Securities Exchange Act of 1934 (15 U.S.C.S. § 78j(b)) may be predicated on the misappropriation theory.
ANALYSIS:
The court also held that Securities Exchange Commission Rule 14e-3(a) was the proper exercise of the Commission's prophylactic powers under § 14e of the Securities Exchange Act of 1934, 15 U.S.C.S. § 78n(e), regarding the prevention of the misappropriation charged against respondent.
OUTCOME: The Court reversed the judgment of the court of appeals holding that criminal liability under the Securities Exchange Act of 1934 may be predicated on the misappropriation theory.
NOTES:
Section 14(e) and Rule 14e-3 create an insider trader violation in tender offer situations.
-A person who trades in securities for personal profit, using confidential information that was misappropriated in a breach of fiduciary duty violates 10(b) and 10(b)(5)
-10(b)(5) The rule prohibits any act or omission resulting in fraud or deceit in connection with the purchase or sale of any security.
-To what extent Rule 10b-5 prohibits insider trading is a matter of some dispute. The SEC has long advocated an "equal access theory" with regard to 10b-5, arguing that anyone who has material, non-public information must either disclose that information or abstain from trading.
-However, the Supreme Court rejected the strongest version of that theory in Chiarella v. United States, holding a person with no fiduciary duty to the shareholders had no duty to disclose information before trading on it. Recently, the Supreme Court has embraced a "misappropriation" theory of omissions, holding in United States v. O'Hagan that misappropriating confidential information for securities trading purposes, in breach of a duty owed to the source of that information, gives rise to a duty to disclose or abstain.
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521 U.S. 642
PROCEDURAL POSTURE: Petitioner sought review of the judgment of the United States Court of Appeals for the Eighth Circuit reversing all of respondent's convictions for securities fraud.
OVERVIEW: Respondent was a partner in a law firm which represented a company regarding a potential tender offer for the common stock of another company. During the representation, respondent purchased call options for the other company's stock and sold them for a significant profit. After the Securities Exchange Commission initiated an investigation into respondent's transactions, a jury convicted respondent of securities fraud.
HOLDING:
On writ of certiorari, the Court held that criminal liability under § 10(b) of the Securities Exchange Act of 1934 (15 U.S.C.S. § 78j(b)) may be predicated on the misappropriation theory.
ANALYSIS:
The court also held that Securities Exchange Commission Rule 14e-3(a) was the proper exercise of the Commission's prophylactic powers under § 14e of the Securities Exchange Act of 1934, 15 U.S.C.S. § 78n(e), regarding the prevention of the misappropriation charged against respondent.
OUTCOME: The Court reversed the judgment of the court of appeals holding that criminal liability under the Securities Exchange Act of 1934 may be predicated on the misappropriation theory.
NOTES:
Section 14(e) and Rule 14e-3 create an insider trader violation in tender offer situations.
-A person who trades in securities for personal profit, using confidential information that was misappropriated in a breach of fiduciary duty violates 10(b) and 10(b)(5)
-10(b)(5) The rule prohibits any act or omission resulting in fraud or deceit in connection with the purchase or sale of any security.
-To what extent Rule 10b-5 prohibits insider trading is a matter of some dispute. The SEC has long advocated an "equal access theory" with regard to 10b-5, arguing that anyone who has material, non-public information must either disclose that information or abstain from trading.
-However, the Supreme Court rejected the strongest version of that theory in Chiarella v. United States, holding a person with no fiduciary duty to the shareholders had no duty to disclose information before trading on it. Recently, the Supreme Court has embraced a "misappropriation" theory of omissions, holding in United States v. O'Hagan that misappropriating confidential information for securities trading purposes, in breach of a duty owed to the source of that information, gives rise to a duty to disclose or abstain.
---
Interested in learning how to get the top grades in your law school classes? Want to learn how to study smarter than your competition? Interested in transferring to a high ranked school?
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