Rule 10b5-2 Duties of trust or confidence
In a situation where a party receives confidential, inside information from a close family member, confidant or some other person where there is an existing duty of trust or confidence, the person who receives the information is under the same obligation as the source when it comes to trading.
Although the duties of trust or confidence can be found in the caselaw, when those duties arise remains sufficiently vague. In order to clarify duties of trust or confidence, the SEC adopted Rule 10b5-2, which attempts to outline common situations where a duty of trust or confidence can be presumed for purposes of insider trading liability.
Such situations include when the party receiving the information explicitly agrees to enter into a relationship of trust or confidence by, for example, signing a confidentiality agreement. Alternatively, where the recipient and the source of the information has a history of sharing confidences. Or, finally, where the recipient and the source of the information have a familial relationship.
Where a recipient trades on information and breaches their duty of trust or confidence to the source, the recipient has breached a duty sufficient to generate liability under the laws of insider trading.
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