Securities & Exchange Commission v. Obus
693 F.3d 276
| 2d Cir. | 2012Background
- SEC sued Obus, Black, and Strickland for insider trading under 10(b) and Rule 10b-5.
- SEC alleged Strickland learned confidential SunSource information and tipped Black, who told Obus; Obus traded SunSource stock.
- District court granted summary judgment for all defendants on both classical and misappropriation theories.
- This appeal concerns liability under the misappropriation theory; district court based its ruling on Strickland’s duty breach being unproven.
- Court finds genuine issues of material fact on whether Strickland tipped Black and whether a breach of fiduciary duty occurred, affecting liability for all three.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Misappropriation liability supported? | SEC: Strickland breached GE Capital duty by tipping Black. | Strickland did not breach duty; GE investigation absolves him. | Genuine issues of material fact exist |
| Did Strickland tip Black knowingly/recklessly? | Evidence shows Strickland told Black about SunSource’s imminent sale. | No direct evidence of a tip; possible innocent explanations. | Fact question for jury |
| Did Black inherit a fiduciary duty from Strickland breach? | Black knew Strickland’s position and that information was confidential; personal benefit possible. | Insufficient evidence Black knew of breach or benefited; no direct trading by Black. | Evidence supports jury issue |
| Did Obus trade with knowledge of non-public information? | Obus acknowledged trading on a tipped SunSource deal; engaged in discussions suggesting awareness. | Trade independently motivated; lack of direct causation from tipping. | Triable issues exist |
| Was deceit element required beyond tipping? | O’Hagan deems misappropriation as deception; tipping suffices with intent/recklessness. | No additional deception shown beyond tipping in some accounts. | Not needed to resolve on summary judgment; disputed fact |
Key Cases Cited
- Dirks v. SEC, 463 U.S. 646 (U.S. 1983) (tipper liability requires breach, intent/benefit, and knowledge of breach)
- Chiarella v. United States, 445 U.S. 222 (U.S. 1980) (insider trading duties for corporate insiders)
- O’Hagan, 521 U.S. 642 (U.S. 1997) (misappropriation theory and fiduciary duties to source)
- Falcone, 257 F.3d 226 (2d Cir. 2001) (tippee liability and personal benefit considerations in misappropriation/tipping)
- Warde, 151 F.3d 42 (2d Cir. 1998) (delineates tippee knowledge of breach in tipping cases)
- Hochfelder, 425 U.S. 185 (U.S. 1976) (scienter requirement in securities fraud)