The Jurisprudence of the Misappropriation Theory and the New Insider Trading Legislation: From Fairness to Efficiency and Back (Symposium: Securities Fraud)

Lawrence E. Mitchell, Case Western University School of Law


I will analyze the competing jurisprudential approaches to insider trading contained in the misappropriation theory and conclude that the origin and defect of the misappropriation theory is its awkward integration (or rather dis-integration) of tort-based and equitable approaches to defining insider trading in the context of nondisclosure of material information. The tectonic clash of the United States Supreme Court's conduct approach to establishing the contours of a section 10(b) violation5 with the Second Circuit's effect jurisprudence6 has produced the misappropriation theory. The result cannot withstand rational analysis.