U.S. Court of Appeals for the Second Circuit
Duty to Disclose Material Nonpublic Information
Steginsky v. Xcelera Inc.
Judges Walker, Cabranes and Parker
Background: The plaintiff, a former minority shareholder of the defendant, appealed from the dismissal of her securities fraud claims. She alleged that the defendant insiders purchased stock by making a tender offer through a shell corporation without disclosing any information about the defendant’s financial state.
Ruling: The Second Circuit vacated the dismissal. The court held that the duty of corporate insiders to either disclose material nonpublic information or abstain from trading is defined by federal common law and applies to unregistered securities. However, the Second Circuit found the dismissal of her market manipulation and insider trading claims proper.
Jeffrey S. Abraham of Abraham, Fruchter & Twersky for the plaintiff-appellant; Peter J. MacDonald of Wilmer Cutler Pickering Hale and Dorr for the defendants-appellees