Tag: Misappropriation Theory

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Classroom Insiders

Classroom Insiders, Season 2 – Exploring the Complexities of SEC vs. OBIS and the Misappropriate Theory

Welcome to Season 2 of Classroom Insiders, a podcast with Professor Karen Woody and her Insider Trading Seminar students from Washington and Lee University. They explore the arc and evolution of insider trading over the last century. Each episode will feature a discussion between Karen Woody and students about insider trading and regulation. Find out what the future lawyers of the university think about past and current legislation and learn more about this fascinating area of law.

In this episode of Classroom Insider Season 2, Professor Woody chats with Noah Gallagher and Ahmed. Together, they explore the intricate details of the famous insider trading case, SEC vs. OBIS. The episode dives into the initial allegations, the roles of various individuals involved, and the complex theories of insider trading used in the case, including the classical and misappropriation theories. The discussion also highlights the various legal challenges and court rulings that shaped the case’s outcome, mainly focusing on fiduciary duty, personal benefit, and scienter requirements.

Listeners will understand how the courts handle insider trading cases and the nuances that legal practitioners face. Noteworthy is the conversation on the impact of the court’s interpretations on the personal benefit test and how this case stands about the broader legal landscape of insider trading.

Key highlights:

  • Overview of SEC vs. OBIS Case
  • Details of the Insider Trading Allegations
  • Theories of Insider Trading Explained
  • Court Proceedings and Initial Rulings
  • Appeal and Trial Outcomes
  • Implications and Legal Interpretations

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Washington and Lee School of Law

Professor Karen Woody

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Classroom Insiders

Acknowledging Misappropriation Theory


 
Andrew Pompa is 2L at Washington and Lee University with a background in economics and finance. Though his career path is undecided, he is very interested in securities regulation and insider trading. In this episode of Classroom Insiders with Professor Karen Woody, Andrew explores how misappropriation theory became legitimized by the court as a proper theory. 
 

 
Andrew shares the differences between misappropriation theory and the classical theory of insider trading. In the classical theory, liability is premised on a breach of fiduciary duty, whereas misappropriation premises liability on a breach of confidentiality in a way that encapsulates people who would be deemed corporate outsiders. Carpenter v. SEC paved the way for the court’s acknowledgement of misappropriation theory.
 
Carpenter was an individual who received information from a Wall Street Journal reporter and traded it to stockbrokers, making roughly $690,000. The SEC successfully argued in the lower court that Carpenter and his accomplices breached a duty of confidentiality towards Wall Street Journal on the premise of misappropriation theory. 
 
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Karen Woody on LinkedIn
 

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Classroom Insiders

Exploring Misappropriation Theory


 
Derek is 2L at Washington and Lee University with a background in K-9 search and rescue in California. He now balances being a law student, pet owner for a retired working dog, husband, and father. In this episode of Classroom Insiders, Derek discusses misappropriation theory and how it came about. 
 

 
Justice Powell believed that the idea of equal access to information was not practical in relation to reality. While it may have been the ideal, the disclose-or-abstain rule was not a pragmatic approach to regulating insider trading, as no one would ever have equal access to information across the board. Powell expressed this in his ruling, arguing that if equal access to information was required, there wouldn’t be many people trading.
 
According to Justice Powell, misappropriation theory was an extension of insider trading regulation that was beyond of the SEC’s authority and the existing understanding of insider trading regulation. Unfortunately, he retires after convincing some of his colleagues to vote against it. As he was no longer on the bench, he could not contribute to the tied 4-4 voting results, so the Second Circuit’s opinion stood by default.
 
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Karen Woody on LinkedIn