United States v. O'Hagan

Summary

The Supreme Court reversed the Eighth Circuit and held that criminal liability under § 10(b) and Rule 10b-5 may be predicated on the misappropriation theory: a fiduciary who trades on confidential information in breach of a duty to the information's source employs a 'deceptive device' 'in connection with' securities transactions. The Court also upheld Rule 14e-3(a) as applied to this case, concluding the SEC acted within its § 14(e) authority to prescribe means reasonably designed to prevent fraudulent tender-offer trading even without proof of fiduciary breach, under Chevron deference. Because the indictment tied the mail fraud counts to the securities charges, the Court ordered those convictions reversed as well and remanded for consideration of O'Hagan's preserved challenges. Justice Scalia concurred in Parts I, III, and IV but would read § 10(b), under the rule of lenity, to require deception of a party to the securities transaction; Justice Thomas, joined by Chief Justice Rehnquist, dissented from the misappropriation and Rule 14e-3(a) rulings as incoherent and unauthorized, while concurring in the judgment on the mail fraud counts.