Under the Misappropriation Theory, who is liable for trading on inside information?

Under the Misappropriation Theory, liability for trading on inside information primarily arises when individuals violate a fiduciary duty. This theory posits that a person who owes a duty to keep information confidential and then uses that information for their own gain is committing fraud.

This means that if someone, such as an employee or consultant, has access to non-public information through a relationship of trust or confidence and then trades on that information, they could be held liable for misappropriation. The emphasis is on the breach of duty and the improper use of that information for personal profit.

The theory distinguishes itself by focusing not solely on the insider trading of corporate executives but on anyone who has fiduciary responsibilities toward the information's source. The misappropriator may not be the original source of the information, and it can be anyone, regardless of their role in the company, who violates that duty. Therefore, individuals acting on inside information without fulfilling their obligation to maintain its confidentiality breach the standards set by this theory, leading to liability.