''United States v. O'Hagan'', 521 U.S. 642 (1997), was a

United States Supreme Court The Supreme Court of the United States (SCOTUS) is the highest court in the federal judiciary of the United States. It has ultimate appellate jurisdiction over all U.S. federal court cases, and over state court cases that involve a point o ...

case concerning insider trading and breach of

U.S. Securities and Exchange Commission The U.S. Securities and Exchange Commission (SEC) is an independent agency of the United States federal government, created in the aftermath of the Wall Street Crash of 1929. The primary purpose of the SEC is to enforce the law against market ...

Rule 10(b) and 10(b)-5. In an opinion written by

Justice Justice, in its broadest sense, is the principle that people receive that which they deserve, with the interpretation of what then constitutes "deserving" being impacted upon by numerous fields, with many differing viewpoints and perspective ...

Ruth Bader Ginsburg Joan Ruth Bader Ginsburg ( ; ; March 15, 1933September 18, 2020) was an American lawyer and jurist who served as an associate justice of the Supreme Court of the United States from 1993 until her death in 2020. She was nominated by President ...

, the Court held that an individual may be found liable for violating Rule 10(b)-5 by misappropriating confidential information. The Court also held that the Securities and Exchange Commission did not exceed its rulemaking authority when it adopted Rule 14e-3(a), "which proscribes trading on undisclosed information in the tender offer setting, even in the absence of a duty to disclose".''O'Hagan'', 521 U.S. at 647.

Background

James O'Hagan was a partner at

Minneapolis Minneapolis () is the largest city in Minnesota, United States, and the county seat of Hennepin County. The city is abundant in water, with thirteen lakes, wetlands, the Mississippi River, creeks and waterfalls. Minneapolis has its origins ...

law firm Dorsey & Whitney. In July 1988, the firm was retained by Grand Metropolitan, a corporation with headquarters in

London London is the capital and largest city of England and the United Kingdom, with a population of just under 9 million. It stands on the River Thames in south-east England at the head of a estuary down to the North Sea, and has been a majo ...

, which was considering an offer to

takeover In business, a takeover is the purchase of one company (the ''target'') by another (the ''acquirer'' or ''bidder''). In the UK, the term refers to the acquisition of a public company whose shares are listed on a stock exchange, in contrast to t ...

the Pillsbury Company, headquartered in Minneapolis. Even though he was not directly involved in the transaction, O'Hagan learned about the possible takeover by overhearing a discussion at lunch. In August 1988, O'Hagan began purchasing stock and options of the Pillsbury company, at around $39 per share.''O'Hagan'', 521 U.S. at 647-48. By the end of September, O'Hagan owned approximately 5,000 shares of Pillsbury and 2,500 options – more than any other individual investor. In October, Grand Met announced the takeover bid and the price of Pillsbury stock rose to $60 per share. O'Hagan subsequently sold his stock at a profit of more than $4.3 million.

Opinion of the Court

The Court held that O'Hagan could be found liable under Rule 10(b) for misappropriating confidential information, and the court remanded the case the United States Court of Appeals for the Eighth Circuit for further proceedings. Because O'Hagan was not directly involved in the proposed takeover, he was not obliged by SEC rules to refrain from trading Pillsbury's stock or to disclose his transactions. Though it didn't find O'Hagan in violation of SEC rules regarding trading by company insiders – known as the "classical doctrine theory" – the Supreme Court adopted an additional doctrine, the "misappropriation theory" set out by Chief Justice Warren Burger in ''

Chiarella v. United States ''Chiarella v. United States'', 445 U.S. 222 (1980), is a case in which the Supreme Court of the United States held that an employee of a printer handling corporate takeover bids who deduced target companies' identities and dealt in their stock wit ...

''.Lowry J. Reisberg, 510 (Pearson, 4th ed. 2012).

References

External links

* {{caselaw source , case = ''United States v. O'Hagan'', {{ussc, 521, 642, 1997, el=no , justia =https://supreme.justia.com/cases/federal/us/521/642/ , loc =http://cdn.loc.gov/service/ll/usrep/usrep521/usrep521642/usrep521642.pdf , oyez =https://www.oyez.org/cases/1996/96-842 1997 in United States case law United States Supreme Court cases United States Supreme Court cases of the Rehnquist Court United States securities case law

Background

Opinion of the Court

See also

References

External links