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In Steginsky v. Xcelera Inc., Nos. 13-1327-cv, 13-1892-cv, 2014 WL 274419 (2d Cir. Jan. 27, 2014), the United States Court of Appeals for the Second Circuit held that even when a company’s securities are unregistered, federal law requires corporate insiders either to disclose material nonpublic information or abstain from trading in those securities.  The Court also held that the “fiduciary-like” duty to refrain from insider trading under Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), 15 U.S.C. § 78j(b), is imposed and defined by federal common law, not common law of the state (or here, country) of incorporation.  This decision marks the first time that the Second Circuit has explicitly announced that the duty against insider trading is rooted in federal common law, and it leaves no question that federal laws prohibiting insider trading apply even to securities that are unregistered.
Continue Reading Second Circuit Holds that Federal Common Law Prohibits Trading By Insiders of a Cayman Islands Corporation While In Possession of Material Nonpublic Information