O’Hagan suggests that a misappropriator can protect herself from liability for insider trading by disclosure to the person to whom she owes a fiduciary duty (the source) of her intent to trade. In SEC v Rocklage (1st Cir. 2006) the Court said that an announcement of an intention to pass information on after it was received did not prevent the acquisition of the information from being deceptive:
On December 31, 2001, Mr. Rocklage learned that one of the company’s key drugs had failed its clinical trial. That afternoon, he phoned Mrs. Rocklage to discuss the trial results and he reached her while she was in a limousine. Before discussing the results with her, Mr. Rocklage made clear his intention that the results be kept confidential. He told her that she was not to react to what he was about to say, and he instructed her not to discuss the results in front of the limousine driver. She agreed. From the time that Mr. Rocklage joined Cubist in 1994, he had routinely communicated material, nonpublic information to his wife, and she had always kept the information confidential. Based on Mrs. Rocklage’s agreement, and based on their prior history of sharing nonpublic information about the company and her keeping that information confidential, Mr. Rocklage had a reasonable expectation that she would not disclose the trial results to anyone. Based on his understanding that she would keep the information confidential, Mr. Rocklage informed his wife that the clinical trial had failed. Before the results were disclosed to her, Mrs. Rocklage understood her husband’s expectation of confidentiality.
Unbeknownst to her husband, Mrs. Rocklage had a preexisting understanding with her brother, defendant Beaver, that she would inform him with “a wink and a nod” if she learned significant negative news about Cubist. At the time that Mrs. Rocklage learned the negative trial results, she knew or had reason to believe that Beaver owned Cubist stock. She also knew or had reason to know her brother would trade in Cubist securities if she disclosed the nonpublic information to him…
After that conversation, and on or about the evening of December 31, 2001, Mrs. Rocklage informed her husband that she planned to signal her brother to sell his stock. Mr. Rocklage urged her not to do so, and he expressed his displeasure at the idea. Nevertheless, sometime before the morning of January 2, 2002, Mrs. Rocklage called Beaver and gave him “a wink and a nod” regarding Cubist….
In light of her disclosure to her husband, Mrs. Rocklage’s mechanism for “distributing” the information to her brother may or may not have been rendered non-deceptive by her stated intention to tip. But because of the way in which Mrs. Rocklage first acquired this information, her overall scheme was still deceptive: it had as part of it at least one deceptive device. Thus as a matter of the facts alleged in the complaint, and taking all facts and inferences in favor of the plaintiff, a § 10(b) claim is stated.
The defendants (the wife, her brother, and the brother’s friend) recently agreed to settle the charges.
WEEK 13: November 12-16 and WEEK 14: November 20
Evaluation will take place on Thursday Nov. 15 at 9.05 am. We will spend the rest of the semester on securities regulation. I plan to go to page 510 of the case book.
The Phi Alpha Delta Canned Immunity food drive takes place this week and you can bring cans to Room F109. If you worry that you’re running late, perhaps you should bring a can!
Today, November 14, Delta Airlines announced that it was not involved in merger discussions with United Airlines:
ATLANTA, Nov. 14, 2007 – Delta Air Lines (NYSE: DAL) today denied published reports that it had engaged in merger talk with United Airlines. Delta Chief Executive Officer Richard Anderson said: “There have been no talks with United regarding any type of consolidation transaction and there are no such ongoing discussions.”
Delta will not speculate on possible airline consolidation and has reiterated its position on the issue. In an earlier statement responding to reports of Pardus Capital Management’s call for Delta to be a leader in airline consolidation, Anderson said:
“We appreciate receiving Pardus’ views on the best course for Delta’s future. We have been consistent in our public statements that Delta believes that the right consolidation transaction could generate significant value for our shareholders and employees and that strategic options should be evaluated. With oil at over $90 a barrel, this analysis takes on a heightened importance as we factor those prices into our long-term planning process.”
Pardus Capital Management is a hedge fund which has been described as an activist fund. The Press release was filed with the SEC today.
The Delta Press Release also includes a disclaimer with respect to forward looking statements:
Statements in this news release that are not historical facts, including statements regarding our estimates, expectations, beliefs, intentions, projections or strategies for the future, may be “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. All forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from the estimates, expectations, beliefs, intentions, projections and strategies reflected in or suggested by the forward-looking statements. These risks and uncertainties include, but are not limited to, the cost of aircraft fuel; the impact that our indebtedness will have on our financial and operating activities and our ability to incur additional debt; the restrictions that financial covenants in our financing agreements will have on our financial and business operations; labor issues; interruptions or disruptions in service at one of our hub airports; our increasing dependence on technology in our operations; our ability to retain management and key employees; the ability of our credit card processors to take significant holdbacks in certain circumstances; the effects of terrorist attacks; and competitive conditions in the airline industry. Additional information concerning risks and uncertainties that could cause differences between actual results and forward-looking statements is contained in Delta’s Securities and Exchange Commission filings, including its Annual Report on Form 10-K for the fiscal year ended December 31, 2006 and its Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2007. Caution should be taken not to place undue reliance on Delta’s forward-looking statements, which represent Delta’s views only as of November 14, 2007, and which Delta has no current intention to update.
Here (from Yahoo Finance) are stock charts for both corporations today:
1. Frank Menendez – November 22, 2007: Great timing; good review! 🙂 http://www.miamiherald.com/news/miami_dade/story/317011.html
2. Frank Menendez – November 22, 2007:And another…
I think there’s a waste argument!
3. Frank Menendez – November 28, 2007: Very interesting!!