In this Note, Bexley discusses the treatment of confidentiality agreements in insider trading cases.  After examining the limited case law on the issue, he argues that a confidentiality agreement alone is insufficient to subject a shareholder to liability for insider trading under the misappropriation theory.

The Supreme Court’s insider trading jurisprudence plainly indicates that a corporate “outsider”  (a person who is not an officer or director in the company) may be held liable for insider trading under the misappropriation theory.  However, misappropriation liability is premised on the trading of stock in violation of a duty not to trade.  More specifically, a person is only guilty of insider trading under the misappropriation theory when he misappropriates confidential information in violation of a duty to the source of the confidential information.  Bexley argues that a confidentiality agreement, without more, cannot form the basis of a duty not to trade.  Instead, he concludes that a duty not to trade can only be premised on the existence of a traditional fiduciary relationship between the shareholder and the source of confidential information.