LAW 200 PRESENTATION

Presented By:
Proma Sen Gupta ID: 1210873030

Case On
Dirks V. Securities & Exchange Commission

FACTS:

Raymond Dirks (hereinafter petitioner), an officer at a broker-dealer, specialized in

providing investment analysis of insurance company securities to institutional
investors.
Received information from Ronald Secrist, former officer of an insurance company
that its assets were vastly overstated as the result of fraudulent corporate practices.
Neither petitioner nor his firm owned or traded any of the company's stock. The
petitioner started his own investigation.
The results of the investigation: Certain company employees affirmed the fraud
charges though senior management denied any wrongdoing.
Throughout his investigation he discussed the obtained information with a number
of clients and investors. Some of them sold their holdings in the company.
As a result, the price of the insurance company's stock fell and the New York Stock
Exchange suspended trading of the stock.
State insurance authorities then impounded the company's records and uncovered
evidence of fraud.
The Securities and Exchange Commission (SEC) filed a complaint against the
company.

PROCEDURAL FACTS:
The SEC found:
The petitioner had aided and abetted violations of the anti
fraud provisions of the federal securities laws (i.e. 17(a) of the
Securities Act of 1933, 10(b) of the Securities Exchange Act of
1934 and SEC Rule 10b-5,)
Sanction Of The SEC:
The SEC only censured him.
The Court Of Appealsentered judgment against petitioner(Dirks).
Petitioner brought an action before the
UNITED STATES SUPREME COURT

Issue:
Whether 10b insider trading violation
occurs when the information is made
public to expose the fraud and also traded
upon when its non-public.

HOLDING
The Court reversed the Appeals Court Judgment and
held that the petitioner did not violate any of anti
fraud provisions of the federal securities law by
disclosing non-public information. He had no duty to
abstain from use of the inside information that he
obtained. Consequently he could not be held liable.

Court reasoned that Dirks, an investment analyst, is a typical tippee who has no
holdings in the insurance company.
He has no preexisting fiduciary duties to either shareholders or
the company itself.
No special relationship of trust and confidence between them.
The insiders of the insurance company (i.e. the employees and
Secrist ) did not violate their fiduciary duties by providing
information to Dirks.
They did not receive any monetary or personal benefit for
revealing the insurance companys secrets, they were
motivated by the desire to expose the fraud.
Thus, no breach of fiduciary duty by insiders.
Consequently - no derivative breach by Dirks.

Thank
You