US v. Newman and the Rewriting of the Law of Insider Trading (Part 9)
So, in summary, Dirks successfully protected the relationship between insiders and market participants. The analysis, however, had numerous gaps that subsequent courts for the most part just ignored them. Fiduciary duties for purposes of insider trading extended to all employees, not just officers and directors. Fiduciary duties applied to sales, even where the buyers were not shareholders and a fiduciary duty did not actually exist.
At the same time, Dirks did not protect the relationship between insiders and their family members or friends. The decision treated disclosure to these persons as a breach of an insider’s fiduciary duty. The case, therefore, encouraged communications between insiders and market participants and discouraged communications between friends and family.
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.