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An Introduction to the Law of Corporations: Cases and Materials, Fall 2017

Misappropriation Theory

Classical insider trading theory generates liability for insiders, temporary insiders, and tippees in the event any of them trade in the stock of the corporation to which they own a fiduciary duty while in possession of material inside information.

However, this classical 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 ANOTHERcorporation and not the corporation to which the insider has a fiduciary duty.

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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