Classical insider trading theory generates liability for insiders. However, classical insider trading theory has an obvious limitation. Under the classical theory of insider trading, there is no liability if the insider uses the material inside information of the corporation to trade in the stock of ANOTHER corporation and not the corporation to which the insider has a fiduciary duty. However, clearly, there are lots of situations where corporations have inside information that could affect the stock price of another corporation. If insiders could trade without fear of liability because the inside information is about a company to whom the insider owes no duty, that would be a problem.
The following cases lay out the courts' response to the limitations of the classical insider trading theory while holding on to its fiduciary duty core.
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