Black Unicorn <unicorn@schloss.li> writes:
I direct you to Dirks v. Securities and Exchange Commission, 463 U.S. 646 (1983).
rev'g 681 F.2d 824 (D.C.Cir.1982), SEC. Rel #34-17480 (Jan 22, 1981).
Specifically footnote 14:
"Under certain circumstances, such as where corporate information is revealed legitimately to an underwriter, accountant, lawyer, or consultant working for the corporation, these outsiders may become fiduciaries of the shareholders.... When such a person breaches his fiduciary relationship, he may be treated more properly as a tipper than a tipee...."
This circumstance is classically refered to as a "footnote 14 insider."
It has been held to apply to lower level employees within the corporation who "knowingly trade based on material non-public information acquired by virtue of their position within the company."
The poor Dirks was a financial analyst who "received information from a former vice president of Equity Funding that there was widespread fraud at the company. Dirks confirmed this information with one current and several former Equity Funding employees and communicated it to five investment advisors. The five investment advisors sold or directed the sale of large blocks of Equity Funding stock without disclosure of the information they had received from Dirks. The SEC found that once Dirks had confirmed the information by contact with a number of former insiders, it had a reasonable probability of being true and was, for that reason, material nonpublic information. The SEC also held that Dirks aided and abetted violations of Section 10(b) on the part of the investment advisors who were his tippees. The decision was upheld by the Court of Appeals but _reversed by the Supreme Court on the grounds that the insider did not breach his fiduciary duty by disclosure of the information because there was no benefit to the insider, and thus Dirks did not breach any duty." I.e., Dirks got away with it, after spending lots of $$$ on shysters. IANAL, but I see a trend to let insiders get away with trading on material non-public information in Chiarella v. U.S. (455 US 222 (1980)) followed by Dirks. --- Dr.Dimitri Vulis KOTM Brighton Beach Boardwalk BBS, Forest Hills, N.Y.: +1-718-261-2013, 14.4Kbps