Edward McNallay spotted a new Delaware Chancery Court case dealing with insider trading by corporate officers:
Pfeiffer v. Toll, C.A. 4140-VCL (March 3, 2010)
The by now ancient Brophy decision upheld a claim against insiders for trading on confidential corporate information. This decision affirms that Brophy is still good law in Delaware. That is no real surprise, given the Court's strict enforcement of the duty of loyalty. The Court's discussion of possible damages that might be recovered also is very expansive.
On a different level, the opinion is revealing on how the Court goes about the task of deciding what is the law of Delaware. It is apparent that the Court is willing to consider a wide range of sources in a detailed analysis. This raises the bar for brief writers as well.
One of those sources to which McNally refers is my book Securities Law: Insider Trading (Turning Point Series)
As a threshold matter, federal law does not establish a “comprehensive federal regime regulating insider trading.” The federal regime is a product of common law adjudication built by interpreting Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5, the principal regulation implementing Section 10(b). See Stephen M. Bainbridge, Securities Law: Insider Trading 24 (1999) (hereinafter “Insider Trading”) (“The core of the modern federal insider trading prohibition derives its statutory authority from § 10(b) . . . .”); id. at 27 (describing Rule 10b-5 as “the foundation on which the modern [federal] insider trading prohibition rests”). Neither Section 10(b) nor Rule 10b-5 actually mentions insiders or insider trading. Id. at 25, 28. The United States Supreme Court has described Rule 10b-5 as “a judicial oak which has grown from little more than a legislative acorn.” Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 737 (1975).9 “Nowhere in Rule 10b-5 jurisprudence is this truer than where the insider trading prohibition is concerned, given the tiny (even nonexistent) legislative acorn on which it rests.” Insider Trading at 28-29. ...
As these landmark decisions show, the United States Supreme Court has “consistently held that insider trading liability requires an agency or fiduciary relationship.” Insider Trading at 92.
More on the substance of the case later.
