Dirks v. SEC

463 U.S. 646 (1983)


  • An insider of a banking group informed D that the company had inflated their assets on the balance sheet.  The insider told D about the inflated assets, suggesting that the company should be investigated for fraud.
    • D was an officer at a brokerage investment firm.
  • D actually took additional steps to investigate the fraud and interviewed the company’s employees, who confirmed such information.
  • D contacted the WSJ newspaper to make the information public in order to expose the fraud.
  • Meanwhile, D told other investors and his clients about the fraud.
    • Investors and clients sold their shares in accordance with his advice.
  • The SEC investigated the company and found fraud.
  • However, the SEC also looked into D’s behavior and found him guilty of trading on insider information.


  • Whether 10b insider trading violation occurs when the information is made public to expose the fraud and also traded upon when it’s non-public.


  • No, D is not guilty of fraud.
  • The court held that (1) the insider’s behavior must first be evaluated to discover whether the tippee breached his/her fiduciary duty, then (2) the tippee’ behavior must be evaluated to see if he/she breached a duty
  • If the tippee received material insider information from someone (an insider) who has a fiduciary duty to shareholders and a duty to disclose.  BUT, the tippee must also know there is a breach of fiduciary duty.
    • Thus, the tippee is liable is he is knowingly furthering the insider’s concealment of the material non-public information and/or continuing the spread of material non-public information.

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