LAW 3111H Lecture Notes - Lecture 25: Fiduciary
Brief:
●Dirks was an officer of a NY broker--dealer firm
●He received information from Ronald Secrist, a former officer of Equity
Funding of America, who alleged the overstatement of assets and fraudulent
corporate practices.
●He urged Dirks to verify the fraud and disclose it publicly.
●Dirks went to Equity Funding HQ and investigated, everyone denied of fraud.
Dirks nor his firm owned or traded in equity funding stock however, the clients
and investors he spoke with did sell their equity funding securities.
●Shortly after the stock fell, California insurance authorities uncovered the
fraud and the SEC began investigation in Dirks.
●SEC claimed Dirks COMMITTED INSIDER TRADING: “aided and abetted as he
informed investors of the allegations of fraud in Equity Fundings”
●FYI: didn’t matter that he didn’t personally buy or sell anything!
○very out there, he was very open went to reporters and was like
HEY FRAUD, HEY LOOK OVER HERE
●Insider: Executives
●temporary “constructive” insider: Scientist, accountant, lawyer
Constructive insider:
- obtain material, nonpublic information,
- with an expectation on part of corporation that outsider will keep info
confidential
- relationship implies such a duty
Dirks is not constructive insider
●expectation on part of corp to keep disclosed info confidential
●corp does not have hope/expectation → he is an investigator/ analyst
●their only hope is that he will not find it
ex) insider gets juicy info --> tells outsider→ buy a whole bunch of this & we will split
the $
it's not enough to get the information
!!
tippe’s liability is derivative of tipper
arising from role as participant after fact in insider’s breach of fiduciary duty
only on the hook if tipper is on the hook
tipper on the hook only when!
1. tipper breached fiduciary duty by disclosing information to the tippee
Document Summary
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