When Grand Met announced its tender offer in October, the Here, by contrast, Rule 10b-5's promulgation has not been challenged; we consider only the Government's charge that O'Hagan's alleged fraudulent conduct falls within the prohibitions of the Rule and § 10(b). Under the complementary "misappropriation theory" urged by the Government here, a corporate "outsider" violates § lO(b) and Rule lOb-5 when he misappropriates confidential information for securities trading purposes, in breach of a fiduciary duty owed to the source of the information, rather than to the persons with whom he trades. Where the property being embezzled has value "apart from [its] use in a securities transaction"even though it is in fact being used in a securities transaction-the Government contends that there is no violation under the misappropriation theory. . See In re O'Hagan, 450 N. W. 2d 571 (1990). Our answer to the first United States Supreme Court. for violation of §10(b) may be based on a misappropriation theory. Id., at 627. tral Bank held that "a private plaintiff may not maintain an aiding and abetting suit under § 10(b)." it in this opinion, is both consistent with the statute and with our precedent. §10(b) and Rule 10b-5, see id., at 474; therefore, there was of securities relies may be liable as a primary violator under 10b-5, meaning which the SEC cannot alter by way of an administrative rule." Indeed, as far as we know from the majority's opinion, this new theory has never been proposed by the Commission, much less adopted by rule or otherwise. As we just explained, however, see supra, at 8-10, deceptive Thus, even if the tipper might, in some circumstances, be inclined to protect the tippee, see ante, at 675-676, n. 20, it is doubtful that the tippee would have violated the misappropriation theory in any event, and thus preventing such nonviolations cannot justify Rule 14e3(a). See Tr. 15 U. S. C. § 78o(c)(2)(D). The governing statutory provision, §14(e) of the Exchange In invalidating Rule 14e-3(a), the Eighth Circuit reasoned, inter alia, that § 14(e) empowers the SEC to identify and regulate "fraudulent" acts, but not to create its own definition of "fraud"; that, under Schreiber v. Burlington Northern, Inc., 472 U. S. 1,7-8, § lO(b) interpretations guide construction of § 14(e); and that, under Chiarella, supra, at 228, a failure to disclose information can be "fraudulent" for § 10(b) purposes only when there is a duty to speak arising out of a fiduciary or similar relationship of trust and confidence. or practice within the meaning of section 14(e) of the [Exchange] Act for Id., at 10.2 O'Hagan was charged with 20 counts of mail fraud, in violation of 18 U. S. C. § 1341; 17 counts of securities fraud, in violation of § 10(b) of the Securities Exchange Act of 1934 (Exchange Act), 48 Stat. U.S. 29 (1983), shows the extremity of that charge. Exchange Act expressly providing a private cause of action against persons 1972) ("Any diversion of funds held in trust constitutes embezzlement whether there is direct personal benefit or not as long as the owner is deprived of his money"). The Government notes another limitation on the forms of fraud § 10(b) reaches: "The misappropriation theory would not ... apply to a case in which a person defrauded a bank into giving him a loan or embezzled cash from another, and then used the proceeds of the misdeed to purchase securities." First, as the Eighth Circuit comprehended the theory, it requires neither misrepresentation nor nondisclosure. the dissent's view, securities traders like O'Hagan would escape SEC civil The Commission's interpretation of § 14(e) would convert it into precisely the type of law just described. The Supreme Court's recent decision in United States v. O'Hagan,6 which upheld the misappropriation theory of insider trading, provides an occasion for reassessing Justice Powell's contributions to the law of insider trading. The United States emphasizes that Rule 14e-3(a)reaches trading Ernst v. Hochfelder, 425 F. 3d, at 627. bankers, and accountants involved in structuring the transaction. See Brief for Respondent 41-42. The Supreme Court's recent decision in United States v. O'Hagan, which upheld the misappropriation theory of insider trading, provides an occasion for reassessing Justice Powell's contributions to the law of insider trading. (emphasis added). and Rule 10b-5. In this context, we acknowledge simply that, in defending the Government's interpretation of the Rule and statute in this Court, the Government's lawyers have pressed a solid point too far, something lawyers, occasionally even judges, are wont to do. The dissent sees this precision 16. A company's confidential information, we recognized in Although informational disparity is inevitable in the securities markets, investors likely would hesitate to venture their capital in a market where trading based on misappropriated nonpublic information is unchecked by law. See Boyce Motor Lines, Inc. v. United States, 342 U. S. 337, 342. on the Grand Met representation. Brief for United States 21 (emphasis added); see also ibid. and Rule 10b-5, when he misappropriates confidential information for securities ("very purpose" of Williams Act was "informed decisionmaking by shareholders"). See Aldave, Misappropriation: A General Theory of Liability Id., at 37. nonpublic information." Through § 14(e) and other provisions on disclosure in the Williams Act,14 Congress sought to ensure that shareholders "confronted by a cash tender offer for their stock [would] not be required to respond without adequate information." with the securities of another customer, absent written consent); §240.15c2-3 Rev., at 119. at 6 (Rule 10b-5 may proscribe only conduct that §10(b) prohibits). the Eighth Circuit, remain open for consideration on remand. Most important for purposes of the instant case, the Court observed in Dirks: "There was no expectation by [the analyst's] sources that he would keep their information in confidence. . duty.") dissent urges that the Commission must be precise about the authority it In particular, Blue Chip Stamps recognized the abuse potential and proof problems inherent in suits by investors who neither bought nor sold, but asserted they would have traded absent fraudulent conduct by others. 11 The 472 U. S., at 11, n. 11. 15 891, 15 U. S. C. § 78j(b), and SEC Rule 10b-5, 17 CFR § 240.10b-5. See Brief for Respondent 41-42. liability hinges exclusively on a breach of duty owed to a purchaser or Last of the three cases the Eighth Circuit regarded as warranting A sole See Brief for United States 4. . John D. French argued the cause for respondent. The Eighth Circuit may address on remand O'Hagan's other challenges to his § lO(b) and Rule 10b-5 convictions. misappropriation theory. We do not find the Commission's CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE EIGHTH CIRCUIT. from his law firm, the Government relied on a conversation between O'Hagan See also SEC v. Maio, 51 F.3d 623, 635 (CA7 1995) ("Rule 14e-3 creates a duty to disclose material non-public information, or abstain from trading in stocks implicated by an impending tender offer, regardless of whether such information was obtained through a breach of fiduciary duty." Motor Vehicle Mfrs. abetting §10(b) and Rule 10b-5 violations by clients and investors But Pillsbury might well have had large doubts about engaging for its legal work a lawyer who so stunningly displayed his readiness to betray a client's confidence. 92 F. 3d 612 (1996). 60410 (1980). covers only deceptive statements or omissions on which purchasers and sellers, To establish a criminal violation of Rule It then observes that the "undisclosed misappropriation of such information, in violation of a fiduciary duty, ... constitutes fraud akin to embezzlement-the fraudulent appropriation to one's own use of the money or goods entrusted to one's care by another.". . See State v. O'Hagan, 474 N. W. 2d 613, 615, 623 (Minn. App. denied, 503 See 92. L. Rev. And if the tipper accurately testifies that the tippee was (falsely) told that the information was passed on without violating the tipper's own duties, one can question whether the tippee has in fact done anything illegal, even under the Commission's misappropriation theory. (1996); 17 counts of fraudulent trading in connection with a tender offer, in violation of § 14(e) of the Exchange Act, 15 U. S. C. § 78n(e), and SEC Rule 14e-3(a), 17 CFR § 240.14e3(a) (1996); and 3 counts of violating federal money laundering statutes, 18 U. S. C. §§ 1956(a)(1)(B)(i), 1957. . liability when, without alerting the source, he trades on the information. Because the Commission's misappropriation theory fails to provide a coherent and consistent interpretation of this essential requirement for liability under § 10(b), I dissent. CASE BRIEF-Week 8 Style of Case and Citation: United States v. O’Hagan, 521 U.S. 642, 117 S. Ct. 2199, 138 L. Ed. The Eighth Circuit may address on remand any such argument that O'Hagan has preserved. The Court of Appeals rejected the misappropriation theory primarily on two grounds. See id., at 739-747; The majority's primary argument on this score is that in many cases" 'a breach of duty is likely but difficult to prove.'" Fed. must be read in light of a longstanding limitation on private §10(b) The statute thus proscribes (1) using any deceptive device (2) in connection " Id., at 624. any relation to a securities transaction satisfies the "in connection with" requirement of § 10(b), both ultimately reject such an overly expansive construction and require a more integral connection between the fraud and the securities transaction. In this case, the only element common to the deception and the harm is that both are the result of the same antecedent cause-namely, using nonpublic information. Post, at 20. are publicly disclosed by press release or otherwise." "There was no expectation by [the analyst's] sources that he would keep See id., at profits potentially available [to them]." Co., 463 U. S. 29 (1983), shows the extremity of that charge. SEe v. Materia, 745 F.2d 197, 199 (CA2 1984). Following Dorsey & Whitney's withdrawal from the representation, Grand Met publicly announced its tender offer, the price of Pillsbury stock rose dramatically, and O'Hagan sold his call options and stock at a profit of more than $4.3 million. §§ 1956(a)(1)(B)(i), 1957. Pp. We reversed To show that a tippee who traded on nonpublic information about a tender offer had breached a fiduciary duty would require proof not only that the insider source breached a fiduciary duty, but that the tippee knew or should have known of that breach. 463 U. S., at 666-667. convictions for fraudulent trading in connection with a tender offer, in There are no findings regarding the "ordinary" use of misappropriated information, much less regarding the "ordinary" use of other forms of embezzled property. "[I]t may be possible to prove circumstantially that a person insiders who have obtained confidential information by reason of their It would not explain Rule 14e-3(a)'s elimination of the requirement that there be such a breach.