Opinion ID: 692992
Heading Depth: 3
Heading Rank: 3

Heading: Tippee liability of Maio and Ladavac for trading in Xidex stock.

Text: 53 The district court also found that Maio and Ladavac violated Sec. 10(b) and Rule 10b-5 when they purchased stock in Xidex on the basis of the material non-public information misappropriated from Anacomp by Ferrero. Under misappropriation theory a person violates Sec. 10 and Rule 10b-5 by misappropriating and trading upon material information entrusted to him by virtue of a fiduciary relationship ... Cherif, 933 F.2d at 410. The district court found that Ferrero breached his fiduciary duty to Anacomp by his misappropriation and disclosure of material non-public information concerning Anacomp's tender offer to Maio and, for the reasons given above, that finding is certainly not clearly erroneous. 12 54 Given Ferrero's misappropriation, Maio and Ladavac had a derivative duty to Anacomp if they knew or should have known that Ferrero's disclosure was improper. See U.S. v. Libera, 989 F.2d 596, 600 (2d Cir.1993) (applying the knew or should have known standard from Dirks in misappropriation context); SEC v. Musella, 748 F.Supp. at 1038 (same). The district court found that Maio and Ladavac had a derivative duty to the shareholders of Anacomp because they knew that Ferrero's disclosure was improper, and breached that duty by their trading in the stock of Xidex. For the reasons given above, those findings are supported by substantial evidence; they are certainly not clearly erroneous. 55