Corporations Keyed to Klein
Dirks v. Securities and Exchange Commission
Facts
An insider that worked for Equity Funding of America told Petitioner that the company was overstating their assets and that Petitioner, who was an officer that provided investment analysis for a broker-dealer firm, should investigate the fraud. Petitioner interviewed other employees who corroborated the fraudulent allegations. Petitioner contacted a bureau chief at The Wall Street Journal and offered his findings for the purpose of exposing the fraud. The bureau chief, fearing a libel suit, declined to pursue it. During this time, Petitioner told investors and clients about the fraud, and they reacted by selling their stake in the company. When the stock was being heavily traded and dipped from $26 to $15, the New York Stock Exchange halted trading and Respondent, The Securities and Exchange Commission, investigated and found fraud. Respondents then filed suit against Petitioner for violations of Section:10(b) of the Securities and Exchange Act of 1934 for using the insider inf ormation and perhaps receive commissions from those clients. The trial court and appellate court agreed with Respondent, reasoning that anytime a tippee knowingly has inside information that they should publicly disclose it or refrain from acting upon it.
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