Chiarella v. United States Case Brief

Why is the case important?

Petitioner traded on confidential information acquired during his work at a financial printer regarding the possible takeover of a corporation without first disclosing this information to the public.

Facts of the case

“Petitioner Vincent Chiarella worked in the composing room of Pandick Press (Pandick), a financial printer. An acquiring corporation hired Pandick to produce announcements of corporate takeover bids. Although the identities of the acquiring and target corporations were concealed, Chiarella was able to deduce the names of the target companies. Without disclosing his knowledge, Chiarella purchased stock in the target companies and sold the shares immediately after the takeover bids were made public. Chiarella realized slightly more than $30,000 in profits from his trading activities. The Securities and Exchange Commission (SEC) then investigated Chiarella’s trading activities. Chiarella entered into a consent decree with the SEC in which he agreed to return the profits he made to the sellers of the shares. A few months later, Chiarella was indicted on seventeen counts of violating Section 10(b) of the Securities Exchange Act of 1934 (1934 Act) and SEC Rule 10b-5. Section 10(b) of the 1934 Act prohibits the use “”in connection with the purchase or sale of any security”” of “”any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the [SEC] may prescribe.”” Rule 10b-5, promulgated under Section 10(b), makes it unlawful for any person to “”employ any device, scheme, or artifice to defraud . . . in connection with the purchase or sale of any security.”” Chiarella was convicted at trial and the Court of Appeals for the Second Circuit affirmed his conviction.”


Whether a person who learns about a corporation’s plan to takeover a target corporation through confidential papers discovered while working at a financial printer violates Section:10b if he fails to disclose the impending takeover before trading in the target company’s securities?


No. Silence does not amount to fraud under Section:10(b) if there is not a duty to disclose based on a confidential relationship between the transacting parties. The Court of Appeals decision is reversed.
The language of Rule 10b-5 and Section:10b encompasses the principle that a person has an absolute duty to disclose misappropriated nonpublic information or to refrain from trading if he does not disclose.


Reversing petitioner’s conviction, the Court held that petitioner had not violated the duty to disclose material information where no relationship of trust or confidence existed between petitioner and the shareholders. While noting that silence in connection with the purchase or sale of securities could have been fraud under § 10(b), the Court held that petitioner had not violated § 10(b) where he was under no affirmative duty to disclose the information before trading. Because petitioner was not an agent or fiduciary of the sellers, the Court found that he had no duty to the sellers.

  • Case Brief: 1980
  • Petitioner: Chiarella
  • Respondent: United States
  • Decided by: Burger Court

Citation: 445 US 222 (1980)
Argued: Nov 5, 1979
Decided: Mar 18, 1980