The law of insider trading is judicially created; no statutory provision explicitly prohibits trading on the basis of material, non-public information. The Supreme Court's insider trading jurisprudence was forged, in large part, by Justice Lewis F. Powell, Jr. His opinions for the Court in United States v. Chiarella and SEC v. Dirks were, until recently, the Supreme Court's only pronouncements on the law of insider trading. Those decisions established the elements of the classical theory of insider trading under § 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act"). Under this theory, corporate insiders and their tippees who trade in their corporation's securities while in possession of confidential information violate duties owed to the corporation's shareholders with whom they trade. The Supreme Court's recent decision in United States v. O'Hagan, which upheld the misappropriation theory of insider trading, provides an occasion for reassessing Justice Powell's contributions to the law of insider trading. The misappropriation theory differs from the classical theory in that it applies when an agent or other fiduciary misuses information entrusted to her by her principal to trade in securities, whether or not those securities were issued by her principal. The Court's decision in O'Hagan breaks new ground in establishing a foundation for insider trading based on common law agency principles, thereby departing from Powell's vision of the scope of insider trading prohibited by § 10(b). This Article explores Justice Powell's legacy for the law of insider trading and traces the development of insider trading jurisprudence through O'Hagan.
Pritchard, Adam C. "United States v. O'Hagan: Agency Law and Justice Powell's Legacy for the Law of Insider Trading." B. U. L. Rev. 78, no. 1 (1998): 13-58.