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Imagine this: A man takes a job as a security guard for a wealthy executive. His duties include answering phone calls and printing emails containing information about the executive's company. So he enters into a confidentiality agreement, which prohibits him from disclosing or using such information for matters outside his employment. But one day he sees a confidential email saying the executive's company is going to be acquired at a premium. He decides to buy stock and call options, all of which he sells at a substantial profit when the information becomes public.
For those who follow the law of insider trading, this seems like an open and shut case. The guard breached a duty by misappropriating material nonpublic information and used it to trade securities. The SEC likely thought this elementary when they brought an enforcement action in 2017 against an individual named Todd Alpert in the Southern District of New York. See, Securities and Exchange Commission v. Todd David Alpert, No. 17-Civ-1879 (S.D.N.Y. filed Mar. 15, 2017)
But an interesting issue soon arose: What kind of duty did Alpert breach? Insider trading cases traditionally turned on breaches of fiduciary duties. But that wasn't quite the case here. After all, Alpert was a contractor. And whatever duty he owed the executive was purely a creature of contract. Was a breach of a contractual duty sufficient to create insider trading liability? And if so, what kind of contractual duty?
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