Brief Fact Summary. An employee of a printing company, Chiarella, utilized private information the company printed for profit.
Synopsis of Rule of Law. Failure to disclose private information by those who are not corporate insiders will not be able to be held as liable under Rule 10b-5.
Section 10(b) of the Exchange Act prohibits the use in connection with the purchase or sale of any security of any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe.View Full Point of Law
Issue. Can failure to disclose private information by those who are not corporate insiders hold them as liable under Rule 10b-5?
Held. (Powell, J.) No. Failure to disclose private information by those who are not corporate insiders will not be able to be held as liable under Rule 10b-5. A party in a securities case that is charged with nondisclosure must be under a duty to disclose it. The securities laws lack anything to form of a general duty to disclose all pertinent information by sellers and purchasers, however, the law places upon fiduciaries and other insiders such a duty, without that duty being offered to non-insiders. The insider’s duty comes from their responsibility to not make private use of corporate information. Chiarella, in this instance, was not an insider and so had no such duty. Reversed.
Discussion. The current case was a criminal one. It has been recommended that it may not be applicable in a civil action, as the onus of proof isdissimilar. The opinion is lacking anything signaling the onus of proof is related to the court’s decision at all.