With respect to tippee analysis, Dirks made clear that insider trading was predicated upon a breach of a duty by the insider. In other words, the tippee’s duty was derivative. The trading activities of the tippee were, therefore, largely irrelevant. Instead, the tippee was guilty of insider trading if the insider was guilty (which meant having a benefit) and the tippee knew about the breach. As the Court reasoned:
- Thus, some tippees must assume an insider's duty to the shareholders not because they receive inside information, but rather because it has been made available to them improperly. And for Rule 10b-5 purposes, the insider's disclosure is improper only where it would violate his Cady, Roberts duty. Thus, a tippee assumes a fiduciary duty to the shareholders of a corporation not to trade on material nonpublic information only when the insider has breached his fiduciary duty to the shareholders by disclosing the information to the tippee and the tippee knows or should know that there has been a breach. . . . Tipping thus properly is viewed only as a means of indirectly violating the Cady, Roberts disclose-or-abstain rule.
The emphasis, therefore, was on the awareness of the tippee that the information had been disclosed improperly.
With respect to Newman, the decision and the request for rehearing en banc is posted, along with the SEC’s amicus brief, at the DU Corporate Governance web site. The amicus filed by a small group of law professors that supports the decision is here.