United States v. O’Hagan

521 U.S. 642


  • O ‘Hagan (O) was a law firm partner at firm making an offer for Pillsbury Company.
    • O was less involved in the transaction from a legal standpoint, but was sufficiently informed to have been aware that purchasing the stock was a lucrative prospect.
    • Thus, O purchased the stock.
  • O then planned on using the proceeds from Pillsbury’s appreciation to pay back money had already stolen from the firm.
  • O made a multimillion dollar profit from his transaction.
  • The SEC charged O with a 10b misappropriation of non-public information (insider trading).
  • The SEC also charged O with a Rule 14e3(a) violation.
    • This rule requires a person in possession of material nonpublic information relating to a “tender offer” to either disclose such information or refrain from purchasing the stock.


  • Whether O acting on the non-public information was a violation of 10b misappropriation insider trading.
  • Whether the SEC had the authority to promulgate 14e3(a).


  • Yes there was a violation of rule 10b and 10b-5.  As a rule, it is a violation of 10b-5 when an agent uses information for personal gain from his principle.
    • O was deceitful in not disclosing that he had purchased Pillsbury stock.
    • O owed a fiduciary duty to Pillsbury as a client of his firm.
    • His use of the non-material public information was at the expense of his client.
  • No, the SEC did not exceed its authority under 14e3(a).  The intent of the act was to ensure that the market is operating fairly and that investors can invest without undue influence by insiders.
    • Note that under rule 14e3(a) there does not need to be a fiduciary relationship.

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