The misappropriation theory of insider trading, which was first recognized by the Supreme Court in United States v. O’Hagan, 521 U.S. 642 (1997), establishes liability for individuals who are not typical “insiders” of companies and also appears to offer such defendants a specific defense to insider trading charges. The O’Hagan Court based the misappropriation theory on a duty owed by the defendant to the source of non-public material information, rather than to the shareholders of the company whose stock was being traded. Because a defendant prosecuted under the misappropriation theory had a duty only to his source, the Court explained that a defendant’s disclosure to the source of information prior to trading or tipping could neutralize the acts of deception necessary for a securities fraud claim. O’Hagan, 521 U.S. at 655.
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