Courts have long recognized two theories of insider trading under §10(b), the “classical theory” and the “misappropriation” theory. Although the two are legally distinct, they share a common element: deception. That is because §10(b) prohibits insider trading as a species of securities fraud and, absent deception, trading on material non-public information is not considered fraudulent.
Two recent decisions, one involving a billionaire investor, the other a computer hacker, have shed light on the kind of deceptive conduct that can transform trading on non-public information into a §10(b) violation. Those decisions also illuminate another important point in insider trading law: An “outsider” can violate §10(b) even in the absence of a fiduciary duty to the source of the information or to the company whose stock is traded.
