A Pennsylvania federal court held yesterday that an agreement not to use confidential inside information for trading purposes need not precede the receipt of that information in order to create liability under the misappropriation theory of insider trading. The ruling in SEC v. Cooperman (E.D. Pa.) appears to be the first decision to address the “novel issue” of “[w]hether liability under the misappropriation theory of insider trading may be premised on a post disclosure agreement” not to trade on or otherwise use inside information.
This decision, if followed by other courts, could give the Government greater leeway in pursuing claims against persons who allegedly agreed not to trade on material, nonpublic information received from corporate insiders. The decision allows such claims to proceed even if the Government cannot specify when the alleged agreement was made, as long as the agreement preceded the actual trading.