Insider Trading

             officers, directors and other key employees on the basis of information not .
             available to the public." The Supreme Court officially recognized the.
             classical .
             theory in the 1980 case U.S. v. Chiarella. U.S. v. Chiarella was the first .
             criminal case of insider trading. Vincent Chiarella was a printer who put .
             together the coded packets used by companies preparing to launch a tender offer.
             for other firms. Chiarella broke the code and bought shares of the target .
             companies based on his knowledge of the takeover bid. He was eventually caught,.
             and his case clarified the terms of what has come to be known as the classical .
             theory of insider trading. However, the Supreme Court reversed his conviction .
             on the grounds that the existing insider trading law only applied to people who.
             owed a fiduciary responsibility to those involved in the transaction. This sent.
             the SEC scrambling to find a way to hold these "outsiders" equally.
             accountable. .
             As a result, the misappropriation theory evolved over the last two decades. It .
             attempted to include these "outsiders" under the broad classifications.
             of .
             insider trading. An outsider is a "person not within or affiliated with the.
             corporation whose stock is traded." Before this theory came into existence,.
             only people who worked for or had a direct legal relationship with a company .
             could be held liable. Now casual investors in possession of sensitive .
             information who were not involved with the company could be held to the same .
             standards as CEOs and directors. This theory stemmed from a 1983 case, Dirks v.
             SEC, but the existence of the misappropriation theory had not been truly .
             recognized until U.S. v. O'Hagan in 1995. The case - U.S. v. O'Hagan - involved.
             an attorney at a Minneapolis law firm. He learned that a client of his firm .
             (Grand Met) was about to launch a takeover bid for Pillsbury, even though he .
             wasn't directly involved in the deal. The lawyer then bought a very sizable .
             amount of Pillsbury stock options at a price of $39.