Wednesday, April 23, 2014
Steve Bainbridge has an excellent post on the insider trading liability of secondary tippees: where, for example, an insider provides nonpublic information to Tippee #1, and Tippee #1 gives that information to Tippee #2.
He argues that Tippee # 2 should be liable under the Dirks case only if Tippee #2 knew or should have known that the insider provided the information for a personal gain. He's clearly right under Dirks. Dirks says that a tippee is liable only if he knew or should have known that the insider tipped the information in breach of a fiduciary duty, and Dirks says, that for this purpose, a breach of fiduciary duty requires some sort of personal gain. But, as Professor Bainbridge points out, the lower courts have not consistently got this right.