United States v. O’Hagan

Facts of the Case

After Grand Metropolitan PLC (Grand Met) retained


1) Does a security-trader violate the Securities and Exchange Act of 1934 by trading securities on the basis of misappropriated information pertaining to a company other than his own?2) Did the Security Exchange Commission have the authority to make Rule 14e-3(a), which forbids security trading on nonpublic foreknowledge of a tender offer?


Yes and Yes. Justice Ruth Bader Ginsburg authored the opinion in the Court’s 6-3 decision. The Court ruled that a security-trader who fails to disclose personal profits gained from reliance on exclusive information is guilty of employing a deceptive device…in connection with the purchase of a security. The security-trader knowingly abuses the duty owed toward the source of information, whether the source is the company he works for or not.The Court also held that the SEC has authority to define and prescribe means reasonably designed to prevent fraudulent…acts…in connection with any tender offer. Rule 14e-3(a) of the Exchange Act, adopted under this fraud-prevention authority, forbids security-traders from trading on the basis of information they know should be kept private unless they publicly disclose their trades.

Case Information

  • Citation: 521 US 642 (1997)
  • Argued: Apr 16, 1997
  • Decided Jun 25, 1997