O'Hagan's problems

Supreme Court Review

Volumn 1997, Issue 1, 1997, Pages 249-269

  Brudney, Victor ^a  

^a NONE

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EID: 0348198465     PISSN: 00819557     EISSN: None     Source Type: Book Series    
DOI: 10.1086/scr.1997.3109743     Document Type: Article

References (59)

1. Section 10(b) provides: It shall be unlawful for any person . . . (b) To use or employ, in connection with the purchase or sale of any security . . . any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the [Securities and Exchange] Commission may prescribe as necessary or appropriate in the public interest or for the protection of investors. Securities Exchange Act of 1934, Pub L No 291, 48 Stat 891 (1934), codified at 15 USC § 78j (1997). Rule 10b-5 provides: It shall be unlaw for any person . . . (a) To employ any device, scheme, or artifice to defraud [or] . . . (b) To engage in any act, practice or course of business which operates or would operate as a fraud or deceit upon any person. . . . in connection with the purchase or sale of any security. 17 CFR § 240.10b-5 (1996).
2. United States v O'Hagan, 117 S Ct 2199 (1997), which involved the indictment of O'Hagan, a partner in a law firm that represented a potential takeover bidder, for purchasing stock in the target prior to the bid. In addition to ruling that Section 10(b) and Rule 10b-5 could validly reach O'Hagan's behavior, the Court held that Rule 14e-3(a) (17 CFR § 240.14e-3(a) (1996)) was a valid implementation by the SEC of § 14(e) of the Exchange Act (15 USC § 78n(e)), which proscribes fraudulent or deceptive behavior in connection with tender offers - notwithstanding the Rule's failure to require that the prohibited trading entail a breach of fiduciary duty. The Court also upheld the Government's argument in support of O'Hagan's conviction for violation of the mail fraud statute (18 USC § 1341). Justice Ginsburg wrote for a majority of six. Justice Thomas, who was joined by the Chief Justice, concurred in the mail fraud ruling, but dissented from the Court's rulings on Rules 10b-5 and 14e-3(a). Justice Scalia concurred in the Court's rulings on mail fraud and Rule 14e-3(a), but dissented separately from the Court's holding on Rule 10b-5.
3. In this Comment, possible questions of reliance or causality and questions of intent are pretermitted by assuming for the former that A's behavior reasonably induces B's response, and for the latter that A intends to induce B to act.
4. See Restatement (Second) of Trusts §§ 170 (comment w), 216, 222 (1959); Austin Wakeman Scott and William Franklin Fratcher, The Law of Trusts §§ 170.9, 222, 222.3 (Little, Brown, 4th ed 1987). Restatement (Second) of Agency §§ 387 (comments a and b), 390 (comment a) (1957).
5. See Restatement (Second) of Contracts § 161(d) and comments (1981); Restatement (Second) of Torts § 551 and comments (1977); E. Allan Farnsworth, 1 Contracts, 406-10 (Little, Brown, 1990); W. Page Keeton, Dan B. Dobbs, Robert E. Keeton, and David G. Owen, Prosser and Keeton on the Law of Torts (West, 5th ed 1984) § 106 at 736-39; Stuart M. Speiser, Charles F. Krause, and Alfred W. Gans, 9 The American Law of Torts §§ 32.60-32.70, at 321-53 (Clark, Boardman & Callaghan, 1992); see also Model Penal Code and Commentaries, Part II, § 223.3(f), pp 197-200 (1980); Wayne R. LaFave and Austin W. Scott, Jr., 1 Substantive Criminal Law § 8.7(b)3 at 385-86 (West, 1986). For an insightful examination of the complexities of the common law "rules" on disclosure obligations, see Deborah A. DeMott, Do You Have the Right to Remain Silent? Duties of Disclosure in Business Transactions, 19 Del J Corp L 65 (1994). Compare Anthony T. Kronman, Mistake, Disclosure, Information and the Law of Contracts 7 J Legal Stud 1 (1978).
6. See Restatement (Second) of Contracts § 161(d) and comments (1981); Restatement (Second) of Torts § 551 and comments (1977); E. Allan Farnsworth, 1 Contracts, 406-10 (Little, Brown, 1990); W. Page Keeton, Dan B. Dobbs, Robert E. Keeton, and David G. Owen, Prosser and Keeton on the Law of Torts (West, 5th ed 1984) § 106 at 736-39; Stuart M. Speiser, Charles F. Krause, and Alfred W. Gans, 9 The American Law of Torts §§ 32.60- 32.70, at 321-53 (Clark, Boardman & Callaghan, 1992); see also Model Penal Code and Commentaries, Part II, § 223.3(f), pp 197-200 (1980); Wayne R. LaFave and Austin W. Scott, Jr., 1 Substantive Criminal Law § 8.7(b)3 at 385-86 (West, 1986). For an insightful examination of the complexities of the common law "rules" on disclosure obligations, see Deborah A. DeMott, Do You Have the Right to Remain Silent? Duties of Disclosure in Business Transactions, 19 Del J Corp L 65 (1994). Compare Anthony T. Kronman, Mistake, Disclosure, Information and the Law of Contracts 7 J Legal Stud 1 (1978).
7. See Restatement (Second) of Contracts § 161(d) and comments (1981); Restatement (Second) of Torts § 551 and comments (1977); E. Allan Farnsworth, 1 Contracts, 406-10 (Little, Brown, 1990); W. Page Keeton, Dan B. Dobbs, Robert E. Keeton, and David G. Owen, Prosser and Keeton on the Law of Torts (West, 5th ed 1984) § 106 at 736-39; Stuart M. Speiser, Charles F. Krause, and Alfred W. Gans, 9 The American Law of Torts §§ 32.60- 32.70, at 321-53 (Clark, Boardman & Callaghan, 1992); see also Model Penal Code and Commentaries, Part II, § 223.3(f), pp 197-200 (1980); Wayne R. LaFave and Austin W. Scott, Jr., 1 Substantive Criminal Law § 8.7(b)3 at 385-86 (West, 1986). For an insightful examination of the complexities of the common law "rules" on disclosure obligations, see Deborah A. DeMott, Do You Have the Right to Remain Silent? Duties of Disclosure in Business Transactions, 19 Del J Corp L 65 (1994). Compare Anthony T. Kronman, Mistake, Disclosure, Information and the Law of Contracts 7 J Legal Stud 1 (1978).
8. With little or no disagreement, those provisions have been so construed by the lower federal courts at least since 1968 (SEC v Texas Gulf Sulphur Co, 401 F2d 833 (2d Cir 1968)) and by the Supreme Court several times (see Affiliated Ute Citizens of Utah v United States, 406 US 128 (1972); Chiarella v United States, 445 US 222 (1980), and Dirks v SEC, 463 US 646 (1983)), and indeed by all the Justices in O'Hagan except possibly Justice Scalia, see 117 S Ct at 2220.
9. For example, mandated disclosure under the 1933 Act and implementing Rules by issuers and controllers with respect to securities that they sell or offer to sell to the public, and the disclosure required under §§ 12 and 17 in order that the seller avoid engaging in fraudulent behavior. Securities Act of 1933, 48 Stat 84-85 (1933), codified at 15 USC § 771 and § 77q (1997), respectively. Similarly, disclosure is mandated under §§ 12, 13, 14, and 16 of the Exchange Act and implementing Rules and is required under §§ 10, 15, and 18 and implementing Rules of that Act in order that a party avoid engaging in fraudulent behavior. Securities Exchange Act of 1934, codified at 15 USC §§ 78j, 781-p, 78r (1997).
10. For example, §§ 15 and 16 of the Exchange Act (codified at 15 USC §§ 78o and 78p).
11. Section 9 of the original Bill, the predecessor of Section 10(b), was said to be designed to catch "any other cunning devices" (see Stock Exchange Regulation, Hearings on HR 7852 and 8720 before House Committee on Interstate and Foreign Commerce, 73d Cong, 2d Sess 115 (1934) (testimony of Thomas G. Corcoran)) that fulfill no useful function in transactions in impersonal securities markets that deal in what had earlier been described to Congress as "intricate merchandise" (see HR Rep No 85, 73d Cong, 1st Sess 8 (1933)). It was acknowledged by the Court to be such a "catch-all" provision (see Ernst & Ernst v Hochfelder, 425 US 185 at 203-05 (1976)).
12. See, for example, Herman & MacLean v Huddleston, 459 US 375 at 385-87 (1983); Louis Loss and Joel Seligman, IX Securities Regulation at 4409-39 (Little, Brown, 3rd ed 1991).
13. 117 S Ct at 2211, citing Chiarella, 445 US 222 at 233 (1980).
14. This construction was suggested by the Court in Chiarella, 445 US 222. The theme was embroidered in Dirks, 463 US 646, and countless lower court decisions.
15. Sections 15 and 16 of the Exchange Act, 15 USC § 78o, § 78p (1997); compare §§ 204A, 206-08 of the Investment Advisers Act of 1940, 15 USC §§ 80b-4a, 6-8 (1988).
16. Section 2 of that Act recites that it is "necessary to provide for regulation and control" of "transactions in securities as commonly conducted upon securities exchanges and the over-the-counter markets" "and of practices and matters related thereto, including transactions by officers, directors and principal security holders, . . . in order to . . . insure the maintenance of fair and honest markets in such transactions." 15 USC § 78b (1997). See Alison Grey Anderson, The Disclosure Process in Federal Securities Regulation: A Brief Review, 25 Hastings L J 311, 316-20 (1974); Steve Thel, The Original Conception of Section 10(b) of the Securities Exchange Act, 42 Stan L Rev 385 (1990); Dennis J. Karjala, Federalism, Full Disclosure and the National Markets in the Interpretation of Federal Securities Laws, 80 Nw U L Rev 1473, 1515-25 (1986).
17. Section 2 of that Act recites that it is "necessary to provide for regulation and control" of "transactions in securities as commonly conducted upon securities exchanges and the over-the-counter markets" "and of practices and matters related thereto, including transactions by officers, directors and principal security holders, . . . in order to . . . insure the maintenance of fair and honest markets in such transactions." 15 USC § 78b (1997). See Alison Grey Anderson, The Disclosure Process in Federal Securities Regulation: A Brief Review, 25 Hastings L J 311, 316-20 (1974); Steve Thel, The Original Conception of Section 10(b) of the Securities Exchange Act, 42 Stan L Rev 385 (1990); Dennis J. Karjala, Federalism, Full Disclosure and the National Markets in the Interpretation of Federal Securities Laws, 80 Nw U L Rev 1473, 1515-25 (1986).
18. Section 2 of that Act recites that it is "necessary to provide for regulation and control" of "transactions in securities as commonly conducted upon securities exchanges and the over-the-counter markets" "and of practices and matters related thereto, including transactions by officers, directors and principal security holders, . . . in order to . . . insure the maintenance of fair and honest markets in such transactions." 15 USC § 78b (1997). See Alison Grey Anderson, The Disclosure Process in Federal Securities Regulation: A Brief Review, 25 Hastings L J 311, 316-20 (1974); Steve Thel, The Original Conception of Section 10(b) of the Securities Exchange Act, 42 Stan L Rev 385 (1990); Dennis J. Karjala, Federalism, Full Disclosure and the National Markets in the Interpretation of Federal Securities Laws, 80 Nw U L Rev 1473, 1515-25 (1986).
19. Prevailing state law (in terms of the number of states imposing fiduciary duties and their commercial importance) did not interdict insider trading in 1934, and even the few states that did appeared to limit the interdiction to face-to-face dealings. See cases collected in Chenery Corp. v SEC, 128 F2d 303 at 307 (DC Cir 1942), remanded 318 US 80 (1942); William K. S. Wang and Marc I. Steinberg, Insider Trading §§ 16.1 and 16.2, pp 1106-33 (Little, Brown, 1996). A persuasive case can be made for the proposition that corporate management and controllers have fiduciary obligations either to "the corporation" or to public security holders or to both that require them to disclose material non-public corporate information, if not also market information, when buying or selling their corporation's securities - or to abstain from transacting. The common law may have been gestating such a case for disclosure to stockholders, but had not yet made it when the federal securities laws addressed (and came to dominate) the matter (Wang and Steinberg, supra). There have been common law intimations of insiders' fiduciary obligations to the "corporation" that may be satisfied by denying gain to the insiders from transactions involving use of corporate information that they did not, or could not, lawfully disclose - even though the corporation might not be able so to use it (compare, e.g., Diamond v Oreamuno, 248 NE2d 910 (NY 1969) with Freeman v Decio, 584 F2d 186 (7th Cir 1978)). Those obligations may also support obligations to the victims of the trades. Finally, a case might even be cobbled together for imposing such obligations on "the corporation" when it trades in its own stock (compare Wood v MacLean Drug Co., 266 Ill App 5 (1932); Ward La France Truck Corp., 13 SEC 373 (1943), and compare § 13(e) of the Exchange Act), although the common law was no more sympathetic to that case than to imposing fiduciary disclosure obligations on management or controllers (see Gladstone v Murray Co., 50 NE2d 958 (Mass 1943); Steven v Hale-Haas Corp., 23 NW2d 620, 632 (Wis 1946)). It is not without a certain irony that the Supreme Court, in its efforts to narrow the scope of the disclosure requirements of Section 10(b), assumed, and in some sense may have furthered, broad local law fiduciary disclosure obligations of management and controllers (Chiarelia, 445 US 222, and Dirks, 463 US 646) and possibly even of "the corporation" - notwithstanding its bizarre insistence that the fiduciary under Section 10(b could only violate his duty if, like a person committing arms-length fraud, he acted intentionally.
20. See, for example, development of the "shingle" theory under § 17(a) of the Securities Act (15 USC § 77q) and Rule 15 c1-2 (17 CFR § 240.15c1-2 (1996)) under the Exchange Act to prevent excessive charges by broker-dealers in transactions with clients that were formally denominated "sales" or "purchases." See Louis Loss and Joel Seligman, VIII Securities Regulation 3772-98 (Little, Brown, 3rd ed 1991).
21. The prohibition of false statements certainly covers transactions between strangers. And, as we have seen, even at common law in exchange transactions between strangers, disclosure was occasionally required by contract or tort doctrine. See note 5. Congress sought and gave the SEC discretion to effect restrictions on dealings between strangers (both nominal and real), including imposing disclosure obligations that went beyond the occasional common law strictures. See note 18.
22. See note 14; Louis Loss, III Securities Regulation 1421-44 (Little, Brown, 2d ed 1961); Loss and Seligman, VII Securities Regulation 3421-48 (Little, Brown, 3rd ed 1991). Compare mail fraud statute (18 USC § 1341 (1994)), which has been interpreted to create a federal standard of fraud. See, for example, Durland v United States, 161 US 306 at 314 (1896); Peter J. Henning, Just Maybe It Should Be Called Federal Fraud: The Changing Nature of the Mail Fraud Statute, 36 BC L Rev 435 (1995). Compare Virginia Bankshares, Inc. v Sandberg, 501 US 1083 (1991), construing (in a private action) antifraud provisions ot Rule 14a-9 under the Exchange Act more narrowly than common law fraud.
23. Compare W. Page Keeton, Fraud-Concealment and Non-Disclosure 15 Tex L Rev 1, 25-26 (1936). A corporate officer's use of non-public corporate information to trade with a stockholder entails the officer unlawfully "taking" the information that "belongs" to the corporation, for whose functions it was generated. The information does not "belong" to the insider, certainly as against B the stockholder, and not less significantly as against other security holders. To be sure, B could, in theory, inquire of the corporation for the information that A has or might have, but apart from information that the corporation has already presumably disclosed pursuant to statutory mandates, B is not entitled to be given the information. Often the corporation is entitled (or even required) to decline to give it - as when release of the information would injure the enterprise. Where that is not so, the corporation has discretion to release the information publicly, but not the obligation or even the authority to do so discriminatorily only to B (even though she is a stockholder) or to individual bondholders unless covenanted for.
24. Consider, for example, whether the sellers in Walton v Morgan Stanley & Co., Inc., 623 F2d 796 (2d Cir 1980), and Frigitemp Corp. v Financial Dynamics Fund Inc., 524 F2d 275 (2d Cir 1975) (who were not the plaintiffs in those cases), could lawfully have obtained from their corporations the information that the defendants had acquired. See note 19. Whether the corporate plaintiffs were (or should have been held to have been) unlawfully treated by the sly mutual funds and investment bankers in those cases is another matter. Consider also whether if Polaroid effects a research breakthrough in the production of a new camera that gives it a substantial commercial advantage over Kodak, it should be able to sell Kodak stock short in the market without disclosure - notwithstanding the doubtful role of trading gains over Kodak investors in Polaroid's incentive structure to engage in the research. See generally Victor Brudney, Insiders, Outsiders and Information Advantages Under the Federal Securities Laws 93 Harv L Rev 322, 353-76 (1979).
25. Possibly liability of a putative violator in circumstances comparable to those referred to in note 20 should turn on whether he "should know" that investors with whom he transacts are not lawfully entitled to the information that advantages him.
26. A somewhat different problem is raised by the tension between the needs of takeover aspirants, who legitimately acquire an information advantage over public investors, and the needs of the latter, who cannot lawfully erode that advantage. The Williams Act (embedded in portions of 15 USC §§ 78m and 78n) is an effort to strike some balance between those conflicting needs by requiring modest disclosures by, and some process restraints on, the bidder to offset his temptation to manipulate his information and bargaining advantages so as to distort investors' choices. Whether the gains from a nonmanipulated market are worth the cost of curtailing some of the bidder's information advantage is not readily determinable.
27. Except possibly for practices like trading against or front-running his customers or advisees.
28. For example, laws against embezzlement, larceny, or the compendious notion, "theft." See Model Penal Code and Commentaries, Part II, § 223, at 122 et seq (1980); Wayne R. LaFave and Austin W. Scott, Jr., 1 Substantive Criminal Law §§ 8.1-8.8, at 325-416 (West, 1986).
29. See note 20.
30. The elasticity of the notion was stretched to cover "special confidential relationship [with outsiders] in the conduct of the business of the enterprise" in Dirks, 463 US 646 at 655 n 14 (1983); and its ambiguity is aptly illustrated in United States v Chestman, 947 F2d 551 (2d Cir 1991) and cases collected in Donald C. Langevoort, Insider Trading: Regulation, Enforcement and Prevention § 3.02[3] and [4] at 3-8 to 3-15 (Clark, Boardman & Callaghan, 1995) and Loss and Seligman, WIII Securities Regulation (cited in note 10) at 3593-98. It is not irrelevant to note that the Supreme Court is hostile to the idea of federal courts importing into Section 10(b) federal fiduciary notions because such concepts are so open-ended (Santa Fe Industries, Inc. v Green, 430 US 462 (1977)) - even though state fiduciary notions seem not to be too open-ended to preclude their importation into Section 10(b).
31. The disclosure obligations of a corporation that is not transacting in its securities, and therefore may have no option to abstain, should be (and are) narrower than those of a trader See Victor Brudney, A Note on Materiality and Soft Information Under the Federal Securities Laws, 75 Va L Rev 723 (1989).
32. As the Court noted in O'Hagan (117 S Ct 2199 at 2212), its prior opinions do not preclude liability under Section 10(b) for failure to disclose by nonfiduciary insiders; but its teaching that rests the disclosure obligation of A to B under Section 10(b and the Rule in fiduciary ground (Chiarella, 445 US 222; Dirks, 463 US 646) does not, at least formally, extend A's obligation to disclose to those to whom he is not a fiduciary insider - for example, bondholders or optionholders. See Loss and Seligman, VIII Securities Regulation at 3598-3602 (cited in note 10); Richard M. Phillips and Robert E. Kohn, Applying the Insider Trading Doctrine to Debt Securities, 6 Insights No. 11 at 18 (Nov 1992). Compare § 20(d) of the Exchange Act enacted in 1984 (15 USC § 78t(d) (1984 Supp)), which effectively eliminated the requirement that breach of a fiduciary duty is a necessary condition for violating Section 10(b) in transactions in options of various kinds.
33. Except for the dissent of Chief Justice Burger and the dissent of Justice Blackmun in Chiarella, 445 US 222 at 240 and 245, respectively, and the concurrence of Justice Brennan, 445 US at 239-40. For discussion of the courts' melange of interpretive analyses of the Section and the Rule over a half century, see Edward A. Fallone, Section 10(B) and the Vagaries of Federal Common Law: The Merits of Codifying the Private Cause of Action Under a Structuralist Approach, 1997 U Ill L Rev 71; Theresa A. Gabaldon, State Answers to Federal Questions: The Common Law of Federal Securities Regulation, 20 J Corp L 155 (1995); Lawrence E. Mitchell, The Jurisprudence of the Misappropriation Theory and the New Insider Trading Legislation: From Fairness to Efficiency and Back, 52 Albany L Rev 775 (1988).
34. Except for the dissent of Chief Justice Burger and the dissent of Justice Blackmun in Chiarella, 445 US 222 at 240 and 245, respectively, and the concurrence of Justice Brennan, 445 US at 239-40. For discussion of the courts' melange of interpretive analyses of the Section and the Rule over a half century, see Edward A. Fallone, Section 10(B) and the Vagaries of Federal Common Law: The Merits of Codifying the Private Cause of Action Under a Structuralist Approach, 1997 U Ill L Rev 71; Theresa A. Gabaldon, State Answers to Federal Questions: The Common Law of Federal Securities Regulation, 20 J Corp L 155 (1995); Lawrence E. Mitchell, The Jurisprudence of the Misappropriation Theory and the New Insider Trading Legislation: From Fairness to Efficiency and Back, 52 Albany L Rev 775 (1988).
35. Except for the dissent of Chief Justice Burger and the dissent of Justice Blackmun in Chiarella, 445 US 222 at 240 and 245, respectively, and the concurrence of Justice Brennan, 445 US at 239-40. For discussion of the courts' melange of interpretive analyses of the Section and the Rule over a half century, see Edward A. Fallone, Section 10(B) and the Vagaries of Federal Common Law: The Merits of Codifying the Private Cause of Action Under a Structuralist Approach, 1997 U Ill L Rev 71; Theresa A. Gabaldon, State Answers to Federal Questions: The Common Law of Federal Securities Regulation, 20 J Corp L 155 (1995); Lawrence E. Mitchell, The Jurisprudence of the Misappropriation Theory and the New Insider Trading Legislation: From Fairness to Efficiency and Back, 52 Albany L Rev 775 (1988).
36. It is not clear, but the dissent may also entail a broader attack un the "connection" that the majority upheld. See note 34.
37. It is also suggested by the Court's prior decision in Superintendent of Insurance of New York v Bankers Life and Casualty Co., 404 US 6 (1971), a case which enjoys little currency with the present Court.
38. See SEC v Cherif, 933 F2d 403 (7th Cir 1991), involving stealing by an ex-employee who used confidential information obtained as employee to obtain access to secrets. Similar reasoning seems to underpin decisions under the mail fraud statute (18 USC § 1341) which, as the Court noted in O'Hagan (117 S Ct at 2208, quoting its earlier opinions), find fraud in "the fraudulent appropriation to one's own use of the money or goods entrusted to one's care by another." In Carpenter v United States, 484 US 19 at 27 (1987), the Court interpreted the words "to defraud" in that statute to "have the common understanding" of " 'wronging one in his property rights by dishonest methods or schemes' and 'usually signify the deprivation of something of value by trick, deceit, chicane or overreaching.'" See Langevoort (cited in note 26), § 603[1] at 6-10 to 6-14.
39. See note 19. See also Frank H. Easterbrook, Insider Trading, Secret Agents, and the Production of Information, 1981 Supreme Court Review 309 at 314-39 (1981).
40. However, the analogy is not entirely apposite. When the fiduciary trades with the beneficiary, the information required to be disclosed to the beneficiary is information (about the value of the security) that effectively belongs to the beneficiary (see note 19) and is taken or appropriated by the fiduciary without the beneficiary's consent; the beneficiary, who is, by definition, unaware of the content of the information, must be informed of it so that she may consent in trading with the fiduciary. In contrast, the information to be disclosed by the fiduciary to the third-party beneficiary when the former takes or appropriates the latter's property (i.e., information) for his own use in trading is more the fact of taking the information for the fiduciary's use than the trading import of the information for another trader. However apposite or inapposite may be the analogy to "deceit" between a fiduciary's obligation to disclose to a beneficiary who is the opposite party to a trade and his obligation to a nontrading third party, it is apparently accepted by both the majority and the dissent in O'Hagen. Its possible inappositeness and the consequent difference between deceiving the trading victim and deceiving the third person and the differing materiality of the undisclosed information (compare Langevoort (cited in note 26), § 6.03[2] at 6-14 to 6-15) and the different consequences of disclosure in the two cases may underlie the dissent's argument about the lack of the requisite "connection."
41. What evidence is necessary to show that the third party could, or would, not have consented? Would the principals in Carpenter v United States, 484 US 19 (1987) (the Wall Street Journal) and United States v Bryan, 58 F3d 933 (4th Cir 1995) (a government agency) have consented to the malefactors trading on the undisclosed information? Could either of those principals lawfully have given such consent?
42. For example, if the trader using the information about a pending ruling is a judge's clerk or a Federal Reserve employee.
43. See note 35.
44. For example, Chiarella, 445 US 222 (use by the bidder), in contrast to the trading insider's corporation's possible disability from using such information. See notes 15 and 19.
45. Section 32 of the Exchange Act, 15 USC § 78ff (1997).
46. For example, §§ 21 and 21A-21C of the Exchange Act, 15 USC §§ 78u-78u-3.
47. Blue Chip Stamps v Manor Drug Stores, 421 US 723, 737 (1975).
48. Compare Central Bank of Denver NA v First International Bank of Denver NA, 511 US 164 (1994).
49. Compare Virginia Bankshares, Inc. v Sandberg, 501 US 1083 (1991), particularly opinion of Scalia, J, at 1110.
50. Blue Chip Stamps v Manor Drug Stores, 421 US 723 (1975); see also SEC v Rana Research, Inc., 8 F3d 1358, 1363-64 (9th Cir 1993).
51. Compare Bateman Eichler, Hill Richards, Inc. v Berner, 472 US 299 (1985), with Pinter v Dahl, 486 US 622 (1988) (pari delicto defense); see Musick, Peeler & Garrett v Employers Ins. Co. of Wausau, 508 US 286 (1993) (contribution); see also Lampf, Pleva, Lipkind, Prupis & Pettigrow v Gilbertson, 501 US 350 (1991) (statute of limitations).
52. There is no doubt that the Court must defer to a legislative scheme of regulation in determining whether a private action may be inferred from the scheme, but there is considerable uncertainty about the making of the inference. Compare the varied rationales and results in the cases discussed in Loss and Seligman, IX Securities Regulation 4312-39 (cited in note 10); and Richard W. Jennings, Harold Marsh, Jr., and John C. Coffee, Jr., Securities Regulation 784-842 (Foundation Press, 7th ed 1992).
53. See authorities cited in note 46.
54. Particular statutory schemes may permit the judicial inference that Congress contemplated only government enforcement of its commands, and precluded private remedies. See note 46. But when courts properly infer that Congress has authorized (or required) private actions as an enforcement mechanism against violators of its prohibition, as in Section 10(b), strong justification or explicit Congressional language is needed to permit courts to conclude that behavior that is found to violate "the text" of a specific Congressional prohibition will not support the private remedy that has long been held to be available against cognate behavior that violates that same prohibition. Neither such justification nor Congressional language can be found here.
55. For example, Moss v Morgan Stanley, Inc., 719 F2d 5 (2d Cir 1983); see SEC v Clark, 915 F2d 439, 445 nn 8-10 (9th Cir 1990); see Mitchell, 52 Albany L Rev 775 (cited in note 29), for discussion of the tensions among the premises that might underlie Section 10(b) and the resulting incongruous interpretations.
56. That a person who has been injured by a malefactor's behavior that violates more than one statutory prohibition (whether imposed by the same or different sovereigns) may have a separate cause of action for violation of each statute against a single malefactor is not a novel notion. Similarly, if two persons are injured in different ways by behavior by a single person that violates a single statutory prohibition, the need to determine the injury to, and damages to be paid to, each does not preclude each (i.e., both) from asserting valid causes of action against the malefactor. Thus, the person from whom a trader deceitfully acquired information may have suffered one injury (e.g., in not being able to keep the information secret, whether or not he intended to use it to buy securities "cheaply"), while the innocently ignorant person who sold the securities "cheaply" to the trader suffered another injury. Determining the amount of compensation to which each is entitled may present difficult problems, but those difficulties do not preclude each victim from asserting a valid cause of action against the trader.
57. The injury resulted from the opposite party trading at a price (1) that did not, and could not, reflect the value that the security would have when the trader's deceitfully acquired information became public, and (2) at which the opposite party would not have traded if the latter had the information that she did not in fact have and could not lawfully acquire.
58. There are problems with allowing a private action to the third party, for deceiving whom Section 10(b) authorizes sending the malefactor to jail, particularly if the third party is not a purchaser or seller; and in any particular case there may be no injury to and no recovery by the third party. See Wang and Steinberg, Insider Trading (cited in note 15) § 6.10.3 at 492-506. If such a cause of action is available to the third party, it certainly should be available to the trading victim. Otherwise the securities laws are given a special deterrent effect against deceiving the third party, even though he does not engage in a purchase or sale of a security, but not the trading victim who does engage in the purchase or sale of a security and is the very person whom it is an essential objective of the securities laws to protect. Moreover, even if such a cause of action by the third person is deemed not to be made available by Congress, the injured trading victim should not be denied a private remedy against the deceiver under the statute. Otherwise the private remedy that Congress authorized the injured trading victim to assert against the trader (for violating Section 10(b) and the Rule) who deceives her directly becomes unavailable because she was injured by reason of a deceit that violates the same statutory provision but is imposed upon her derivatively - notwithstanding that the statutory provision is violated only if the deceit is thus imposed upon her derivatively. See generally Langevoort (cited in note 26) § 9.03 at 9-17 to 9-27.
59. Section 20A of the Exchange Act, 15 USC § 78t (1997); Langevoort (cited in note 26), § 9.02[4] at 6-33 and 9-16 to 9-17. The 1984 amendment (see note 28) and the 1988 amendment and the House Committees' explanations for them (see HR Rep No 98-355 (98th Cong, 1st Sess 1983), 3-5, 13-15; HR Rep No 100-910 (100th Cong, 2d Sess 1988) at 10-11, 26-27, 35) suggest that the Congresses enacting the amendments understood the meaning of the pre-amendment language of Section 10(b) and the Rule to be in accord with the Court's opinion in O'Hagan, and that the statute could be violated by persons who misappropriated information even if the misappropriator was not a fiduciary of the opposite party to the trade.