From: Black Unicorn <unicorn@schloss.li>
Date: Wed, 5 Jun 1996 15:10:35 +0800
To: "Dr.Dimitri Vulis KOTM" <dlv@bwalk.dm.com>
Subject: Re: Saw this on CNN: Anonymous Stock tips over IRC as bad???
In-Reply-To: <mmaZoD50w165w@bwalk.dm.com>
Message-ID: <Pine.SUN.3.91.960604164615.11159B-100000@polaris>
MIME-Version: 1.0
Content-Type: text/plain


On Mon, 3 Jun 1996, Dr.Dimitri Vulis KOTM wrote:

> Black Unicorn <unicorn@schloss.li> writes:
> > I direct you to Dirks v. Securities and Exchange Commission, 463 U.S. 646
> > (1983).
> 
> rev'g 681 F.2d 824 (D.C.Cir.1982), SEC. Rel #34-17480 (Jan 22, 1981).

[...]

> his tippees. The decision was upheld by the Court of Appeals but _reversed
> by the Supreme Court on the grounds that the insider did not breach his
> fiduciary duty by disclosure of the information because there was no benefit
> to the insider, and thus Dirks did not breach any duty."

I'm not sure where you got this quote.  Probably a commentator who knows 
jack about securities regulation.  They reversed because the SECs 
conclusion was expansive even with respect to Chiarella, which it 
implied it was following:  "Where 'tippees' - regardless of their 
motiviation or occupation- come into possession of material 'information 
that they know is confidential and know or should know came from a 
corporate insider,' they must either publically disclose that information 
or refrain from trading"  21 SEC Docket 1401, 1407 (1981).

> I.e., Dirks got
> away with it, after spending lots of $$$ on shysters.

I'm not sure I agree with your read of the facts here at all.

You failed to mention that Dirks called the Wall Street Journal with his
findings in an effort to expose the massive frauds at three times and was 
ignored each time.  (William Blundell was the Journal reporter).

Dirks began to tell everyone under the sun about his own first hand 
investigations (he visited Equity Funding in LA and talked to officers 
and employees) only after he was repeatedly ignored by the Journal and 
other publications (which refused to believe that Equity was twisted as a 
pretzel).  Neither Dirks nor his firm ever held interests in Equity Funding.

As word spread of the fraud, Equity funding lost half its value in two 
weeks.  California impounded Equity's records and revealed the fraud 
officially.  Finally, the SEC (who Dirks had also yelled at and been 
ignored by) filed a complaint (3 weeks later) and the Journal Published a 
story (front page April 2, 1973).

It was then, and amid criticism of the SEC, that a complaint was filed 
against Dirks and the SEC found Dirks had aided and abetted violations of 
section 17(a) of the Securities Act of 1933, rule 10b and 10b-5 among 
others.  After a massive stink, the SEC backed off and stated that Dirks 
"played an important role in bringing [Equity Funding's] massive fraud to 
light," 21 SEC Docket at 1412.  The SEC elected to drop charges, and only 
censured Dirks.

Dirks wasn't buying this bill of goods (it seemed to have the tendency to 
repeatedly destroy his career) and instead and appealed to the Court of 
Appeals for the District of Columbia Circuit to clear his good name.  
(No fines or restrictions were imposed on Dirks, they merely held him out 
to be a crook in public).  The District Court entered against Dirks and he 
appealed to the Supreme Court which reversed.

Easy to demonize the defendant when you don't have all the facts.

> IANAL,

Apology accepted.

> but I see a trend to let insiders get away with trading on material
> non-public information in Chiarella v. U.S. (455 US 222 (1980)) followed by
> Dirks.

An odd analysis considering both Chiarella and Dirks simply refine the 
defintion of insider instead of allowing the SEC to designate it.

> ---
> 
> Dr.Dimitri Vulis KOTM
> Brighton Beach Boardwalk BBS, Forest Hills, N.Y.: +1-718-261-2013, 14.4Kbps

---
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