United States v. O'Hagan
United States Supreme Court
521 U.S. 642 (1997)
James O'Hagan (defendant), a partner at the law firm representing Grand Metropolitan PLC in its planned tender offer for Pillsbury Company, used confidential knowledge of the impending, still-nonpublic offer to buy Pillsbury call options and stock; after the offer became public and Pillsbury's stock price surged, he sold his position for over $4 million in profit. The SEC charged O'Hagan with violating §§ 10(b) and 14(e) of the Securities Exchange Act; a jury convicted him, but the Eighth Circuit reversed, holding Rule 10b-5 liability could not rest on the misappropriation theory of insider trading.
Whether a person is guilty of securities fraud when he misappropriates confidential information for securities trading purposes in breach of a duty to the source of that information, and whether SEC Rule 14e-3, creating a duty to disclose or abstain from trading on information obtained from an insider, is a proper exercise of the SEC's rulemaking authority.