(The news featured below is a selection from the news covered in Federal Securities Law Reporter.)

Attorney Could Be Liable for Insider Trading

A district court (ND Tex) denied a motion to dismiss a complaint brought by the SEC against an attorney for trading securities for personal profit using non-public information. The attorney, who learned the information during discussions with several company executives concerning the potential employment of his company to provide tax advice services, argued that the complaint did not allege a sufficient duty to or relationship with the company officers involved to establish liability under a misappropriation theory.

The court held that the prospective nature of the business relationship between the attorney and the executives, which was ultimately not finalized, did not preclude application of a misappropriation theory. Based on the allegations, a reasonable inference could be drawn that the parties understood that a trust or confidence had been reposed in the attorney not to use the information for personal gain. Further, the complaint's allegations of the numerous confidentiality safeguards that the tax-planning company had in place demonstrated the recognition that the services provided necessarily entailed the sharing of confidential information and the consequent need to protect information received from clients and prospective clients.

The court also denied the attorney's motion to dismiss for failure to adequately allege a strong inference of scienter. The allegations regarding the extremely opportunistic timing of the stock purchases immediately after learning confidential information and that the attorney was a sophisticated investor who was aware that the information had been given to him by company insiders provided strong circumstantial evidence of conscious misbehavior.

SEC v. Kornman (ND Tex )