Securities Act § 10(b) & US v. O'Hagen???

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Renzo
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Joined: Tue Dec 02, 2008 3:23 am

Securities Act § 10(b) & US v. O'Hagen???

Postby Renzo » Mon Dec 20, 2010 2:22 pm

WTF is going on here.

I understand where the source of the duty allegedly comes from in the "misappropriation theory." I do NOT understand the implications of it.

So, if a lawyer gains insider info about a deal, and tips a friend who trades on that info, who is going jail? The tipper? The tippee? Both? WHy?

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HugerThanSoup
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Re: Securities Act § 10(b) & US v. O'Hagen???

Postby HugerThanSoup » Tue Dec 21, 2010 8:56 am

In response to O'Hagan, under 14e-3, anyone with material non-public information relating to tender offers (including the attorney/tipper and friend/tippee) are potentially liable, since there is no duty requirement.

As to your specific question, tippers are liable if they owe a duty to the source of the information and they receive a personal benefit from the misappropriation. This second requirement comes from Dirks. The tippee is liable if she knows or should have known that the tipper breached her duty in providing her with the information.

In O'Hagan, the court found that the lawyer breached his duty of confidentiality to the firm (note that he's not an insider, or even a temporary insider under fn. 14, because the target, whose stock he traded in, was not a client of the firm). There was no tipper-tippee liability. If there was, the tippee would only be liable under 10(b) if he knew or should have known that the lawyer was breaching his duty to the firm by telling him the non-public information (and so on down the chain if there are additional tips) and the tipper personally benefited from the transaction ($, reputational gain, quid pro quo info. exchange, or gifts in certain cases).

Renzo
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Joined: Tue Dec 02, 2008 3:23 am

Re: Securities Act § 10(b) & US v. O'Hagen???

Postby Renzo » Tue Dec 21, 2010 11:05 am

Ah, thanks.


So, as long as the tipper owes a duty of some sort, that duty essentially travels with the tip, so long as the tipee knows (or constructively knows) that material should have been kept in confidence?




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