Abstract

http://ssrn.com/abstract=1615264
 
 

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Outsider Hacking and Insider Trading: The Expansion of Liability Absent a Fiduciary Duty


James A. Jones II


University of Washington - School of Law

October 12, 2010

Washington Journal of Law, Technology & Arts, 2010

Abstract:     
In January 2008, the United States District Court for the Southern District of New York held that trading put options of a company’s stock based on inside information allegedly obtained by hacking into a computer network did not violate antifraud provisions of federal securities law. The court ruled that the defendant’s alleged “hacking and trading” did not amount to a violation of section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, promulgated thereunder, because there was no proof the hacker breached a fiduciary duty in obtaining the information. The United States Court of Appeals for the Second Circuit overturned the District Court’s decision, finding that a breach of fiduciary duty was not required for computer hacking to be “deceptive.” This article evaluates the Second Circuit’s decision in S.E.C. v. Dorozhko in light of the assumption that liability under the misappropriation theory requires a breach of fiduciary duty. This article also explores how the Second Circuit’s decision may potentially expand section 10(b) liability to a wider range of parties who take advantage of access to material nonpublic information by trading securities based on that information.

Number of Pages in PDF File: 14

Keywords: Dorozhko, insider trading, missappropriation, fiduciary duty, hacking, trading, securities exchange act, securities, SEC, Securites Exchange Commission

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Date posted: May 25, 2010 ; Last revised: July 1, 2014

Suggested Citation

Jones, James A., Outsider Hacking and Insider Trading: The Expansion of Liability Absent a Fiduciary Duty (October 12, 2010). Washington Journal of Law, Technology & Arts, 2010. Available at SSRN: http://ssrn.com/abstract=1615264

Contact Information

James A. Jones II (Contact Author)
University of Washington - School of Law ( email )
William H. Gates Hall
Box 353020
Seattle, WA 98105-3020
United States

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