Tipper Case Study

The intent of the gift is not a necessary element to prove a personal benefit. Although the gift could be used in a situation as a replacement for monetary value as discussed above, the gift could simply be altruistic in nature. Even in such cases, the tippee still has a duty not to trade stemming from the tipper’s fiduciary duty. “Absent some legitimate reason for [the tipper’s] disclosure, the inference that [the] disclosure was an improper gift of confidential corporate information is unassailable. If [the tipper] did not have to make any disclosure, why tell [the tippee] anything?” (51 F.3d 623, 633). The Court noted in Dirks that “the giving of a gift in certain circumstances was an “objective circumstance” … that would infer … personal …show more content…
According to the classical theory, the tip itself was not considered fraudulent. Instead, fraud would only exist when transacting with a shareholder. This carried onto U.S. v. Newman which concluded “a tippee’s knowledge of the insider’s breach necessarily requires knowledge that the insider disclosed confidential information in exchange for personal benefit.” (Id. at 449). United States v. O’Hagan established that Rule 10b-5 could be directed at deceptions whose primary harm was unjust enrichment rather than fraud that hindered efficient markets. The problem with the classical theory was that there was still questionable room on what constituted insider trading liability, which could be a non-fiduciary instance to shareholders. The O’Hagan ruling made it illegal for someone to misappropriate information, a step towards defining that the personal benefit is not required like in a classical case. This case being discussed provides the perfect opportunity to clarify the misappropriation theory and the elimination of the personal benefit