1. In Chiarello United States, the Supreme Court Required Chiarella to disgorge
ID: 2804211 • Letter: 1
Question
1. In Chiarello United States, the Supreme Court Required Chiarella to disgorge the profit he obtained by trading on non-public information a. b Ruled that mere possession of non-public information did not trigger the "disclose or c. d. abstain" duty Upheld Chiarella's conviction for Insider Trading Ruled that Chiarella could not trade on non-public information because he had fiduciary 2. In United States V.O'Hagan, the Supreme Court: Ruled that O'Hagan was not liable for securities fraud Ruled that O'Hagan did not violate insider trading rules because he did not have a fiduciary duty to the company's shareholders Validated the misappropriation theory Ruled that the misappropriation theory did not apply a. b. c. d. 3. The Rule against Misappropriation of Tender Offer Information (Rule 14e-3): Prohibits, anyone (other than the bidder) to trade on material, non-public information about a tender offer obtained from the bidder or the target a.Explanation / Answer
1.Question before court : Did Chiaraella "violate Section 10(b) of the 1934 Act by failing to disclose the impending takeover before trading in the target company's securities?
In Chiarella Vs United states, the supreme court ruled that a duty to disclose under section 10(b) does not arise from the mere possession of nonpublic market information.
Chiarella had no "fiduciary relationship" with either company, nor was he an agent of either company, Chiarella had no duty to disclose the privileged information, and he did not receive confidential information from the targeted companies.
Hence the answer is b.
2. United States v. O'Hagan
In this case the Court held that an individual may be found liable for violating Rule 10(b)-5 by misappropriating confidential information. The Court also held that the Securities and Exchange Commission did not exceed its rule making authority when it adopted Rule 14e-3(a), "which prescribes trading on undisclosed information in the tender offer setting, even in the absence of a duty to disclose".
Hence court validated the misappropriation theory.
Hence the answer is C
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