Insider Trading

We've had the Second Circuit finally speak in SEC v. Dorozhko regarding the liability of people who owe no fiduciary duty to the source of the information who steals inside information and makes a profit off of it. The Second Circuit held "[T]he Supreme Court has in a number of opinions carefully established that the essential component of a § 10(b) violation is a breach of a fiduciary duty to disclose or abstain that coincides with a securities transaction.”

One of the interesting aspects of the case is the subtle shift from the fiduciary base theory of US v. O'Hagan to a property rights approach. To quote the quoteable Steven Bainbridge in his blog post about the case: "If a law student had written the Dorozhko, I’d give him a D (and only because I never ever fail anybody). It is not an interpretation of O’Hagan. It is the creation of an entirely new version of misappropriation liability., carved out of whole cloth and without any regard for precedent. It may be right on policy, but isn’t that for the Supreme Court to decide."

This theory also goes with the recent dismissal of the complaint against Mark Cuban for insider trading as well.

Dutch Treat

The Dutch Supreme Court recently held that if a director of a company commits a tort towards a company's creidtor, and is therefore personally liable towards that creditor, if the director enters into an obligation on behalf of the company while he knew or reasonably should have known that the company would not - or not within a reasonable period - be able to fulfill its obligation and would not offer recourse for the damage suffered by the creditor as a result of the malperformance, unless the director is able to show that he personally did not make a sufficiently serious mistake in this respect. www.thedefiningtension.com I just wanted to remind everyone that American law is very different in that in the United States directors do not act as agents of a corporation.

More on Shareholder Access

The ABA just proposed amendments to the Model Business Corporation Act that seem to do a better job with respect to shareholder access to proxy nominations. They will be published shortly in the August edition of the Business Lawyer. Essentially, the amendments will provide for companies to provide their own procedures to allow shareholder access.