Court Opinion

ID: 9482207
Source: CourtListenerOpinion
Date Created: 2023-08-05 08:43:27.047185+00
Date Added: 2024-06-11T17:48:50.148785
License: Public Domain

ON REHEARING IN BANC
MESKILL, Circuit Judge,
joined by CARDAMONE, PRATT, MINER and ALTIMARI, Circuit Judges:
In this rehearing in banc, we consider for the first time the validity of Rule 14e-3(a), 17 C.F.R. § 240.14e-3(a), which was promulgated by the Securities and Exchange Commission (SEC) under section 14(e) of the 1934 Act, 15 U.S.C. § 78n(e); we then reexamine two familiar landmarks of the securities fraud landscape, section 10(b) of the Securities Exchange Act of 1934 (1934 Act), 15 U.S.C. § 78j(b), and the mail fraud statute, 18 U.S.C. § 1341. The issues spring from the alleged insider trading of defendant Robert Chestman. A jury found Chestman guilty of thirty-one counts of insider trading and perjury: (1) ten counts of fraudulent trading in connection with a tender offer in violation of section 14(e), 18 U.S.C. § 2, and Rule 14e-3(a),1 (2) ten counts of securities fraud in violation of section 10(b), 18 U.S.C. § 2, and 17 C.F.R. § 240.10b-5 (1988) (Rule 10b-5), (3) ten counts of mail fraud in violation of the mail fraud statute and 18 U.S.C. § 2, and (4) one count of perjury in violation of 18 U.S.C. § 1621. A panel of this Court reversed Chestman’s convictions in their entirety. 903 F.2d 75 (2d Cir.1990).
On in banc reconsideration, we conclude that the Rule 14e-3(a) convictions should be affirmed and that the Rule 10b-5 and mail fraud convictions should be reversed. We vacate the panel’s decision on all three issues. We did not rehear the appeal from the perjury conviction and, as a result, the panel’s reversal of that conviction stands.
*555BACKGROUND
Robert Chestman is a stockbroker. Keith Loeb first sought Chestman’s services in 1982, when Loeb decided to consolidate his and his wife’s holdings in Wald-baum, Inc. (Waldbaum), a publicly traded company that owned a large supermarket chain. During their initial meeting, Loeb told Chestman that his wife was a granddaughter of Julia Waldbaum, a member of the board of directors of Waldbaum and the wife of its founder. Julia Waldbaum also was the mother of Ira Waldbaum, the president and controlling shareholder of Waldbaum. From 1982 to 1986, Chestman executed several transactions involving Waldbaum restricted and common stock for Keith Loeb. To facilitate some of these trades, Loeb sent Chestman a copy of his wife’s birth certificate, which indicated that his wife’s mother was Shirley Waldbaum Witkin.
On November 21, 1986, Ira Waldbaum agreed to sell Waldbaum to the Great Atlantic and Pacific Tea Company (A & P). The resulting stock purchase agreement required Ira to tender a controlling block of Waldbaum shares to A & P at a price of $50 per share. Ira told three of his children, all employees of Waldbaum, about the pending sale two days later, admonishing them to keep the news quiet until a public announcement. He also told his sister, Shirley Witkin, and nephew, Robert Karin, about the sale, and offered to tender their shares along with his controlling block of shares to enable them to avoid the administrative difficulty of tendering after the public announcement. He cautioned them “that [the sale was] not to be discussed,” that it was to remain confidential.
In spite of Ira’s counsel, Shirley told her daughter, Susan Loeb, on November 24 that Ira was selling the company. Shirley warned Susan not to tell anyone except her husband, Keith Loeb, because disclosure could ruin the sale. The next day, Susan told her husband about the pending tender offer and cautioned him not to tell anyone because “it could possibly ruin the sale.”
The following day, November 26, Keith Loeb telephoned Robert Chestman at 8:59 a.m. Unable to reach Chestman, Loeb left a message asking Chestman to call him “ASAP.” According to Loeb, he later spoke with Chestman between 9:00 a.m. and 10:30 a.m. that morning and told Chest-man that he had “some definite, some accurate information” that Waldbaum was about to be sold at a “substantially higher” price than its market value. Loeb asked Chestman several times what he thought Loeb should do. Chestman responded that he could not advise Loeb what to do “in a situation like this” and that Loeb would have to make up his own mind.
That morning Chestman executed several purchases of Waldbaum stock. At 9:49 a.m., he bought 3,000 shares for his own account at $24.65 per share. Between 11:31 a.m. and 12:35 p.m., he purchased an additional 8,000 shares for his clients’ discretionary accounts at prices ranging from $25.75 to $26.00 per share. One of the discretionary accounts was the Loeb account, for which Chestman bought 1,000 shares.
Before the market closed at 4:00 p.m., Loeb claims that he telephoned Chestman a second time. During their conversation Loeb again pressed Chestman for advice. Chestman repeated that he could not advise Loeb “in a situation like this,” but then said that, based on his research, Waldbaum was' a “buy.” Loeb subsequently ordered 1,000 shares of Waldbaum stock.
Chestman presented a different version of the day’s events. Before the SEC and at trial, he claimed that he had purchased Waldbaum stock based on his own research. He stated that his purchases were consistent with previous purchases of Waldbaum stock and other retail food stocks and were supported by reports in trade publications as well as the unusually high trading volume of the stock on November 25. He denied having spoken to Loeb about Waldbaum stock on the day of the trades.
At the close of trading on November 26, the tender offer was publicly announced. Waldbaum stock rose to $49 per share the next business day. In December 1986 Loeb learned that the National Association *556of Securities Dealers had started an investigation concerning transactions in Wald-baum stock. Loeb contacted Chestman who, according to Loeb, “reassured” him that Chestman had bought the stock for Loeb’s account based on his research. Loeb called Chestman again in April 1987 after learning of an SEC investigation into the trading of Waldbaum stock. Chestman again stated that he bought the stock based on research. Similar conversations ensued. After one of these conversations, Chestman asked Loeb what his “position” was, Loeb replied, “I guess it’s the same thing.” Loeb subsequently agreed, however, to cooperate with the government. The terms of his cooperation agreement required that he disgorge the $25,000 profit from his purchase and sale of Waldbaum stock and pay a $25,000 fine.
A grand jury returned an indictment on July 20, 1988, charging Chestman with the following counts of insider trading and perjury: ten counts of fraudulent trading in connection with a tender offer in violation of Rule 14e-3(a), ten counts of securities fraud in violation of Rule 10b-5, ten counts of mail fraud, and one count of perjury in connection with his testimony before the SEC. The district court thereafter denied Chestman’s motion to dismiss the indictment. 704 F.Supp. 451 (S.D.N.Y.1989). After a jury trial, Chestman was found guilty on all counts.
Chestman appealed. He claimed that Rule 14e-3(a) was invalid because the SEC had exceeded its statutory authority in promulgating a rule that dispensed with one of the common law elements of fraud. He also argued that there was insufficient evidence to sustain his Rule 10b-5, mail fraud and perjury convictions.
A panel of this Court reversed Chest-man’s convictions on all counts, issuing three separate opinions on the Rule 14e-3(a) charges. 903 F.2d 75 (2d Cir.1990). Familiarity with the panel’s opinions is assumed.
A majority of the active judges of the Court voted to rehear in banc the panel’s decision with respect to the Rule 14e-3(a), Rule 10b-5, and mail fraud convictions. We directed the parties to file additional briefs on these issues and heard oral argument on November 9, 1990.
DISCUSSION
A. Rule Ue-3(a)
Chestman challenges his Rule 14e-3(a) convictions on three grounds. He first contends that the SEC exceeded its rulemak-ing authority when it promulgated Rule 14e-3(a). He then argues that the government presented insufficient evidence to support these convictions. Finally, he contends that his convictions should be overturned on due process notice grounds. We begin with his facial attack on the validity of Rule 14e-3(a).
1. Validity of Rule 14e-3(a)
Chestman’s first challenge concerns the validity of a rule prescribed by the SEC pursuant to a congressional delegation of rulemaking authority. The question presented is whether Rule 14e-3(a) represents a proper exercise of the SEC’s statutory authority. While we have not heretofore addressed this question, several district court judges in this Circuit have concluded that Rule 14e-3(a) represents a valid exercise of rulemaking authority. See United States v. Marcus Schloss & Co., Inc., 710 F.Supp. 944, 955-57 (S.D.N.Y.1989) (Haight, J.); U.S. v. Chestman, 704 F.Supp. 451, 454-58 (S.D.N.Y.1989) (Walker, J). See also O’Connor & Assoc. v. Dean Witter Reynolds, Inc., 529 F.Supp. 1179, 1190-91 (S.D.N.Y.1981) (Lasker, J.) (rejecting contention that Rule 14e-3 exceeds the scope of section 14(e) because the rule covers transactions on the open market, and not just transactions between the tender offer- or and a shareholder of a target company).
The enabling statutes for Rule 14e-3(a) are section 14(e) and section 23(a)(1) of the 1934 Act. Section 14(e) provides:
It shall be unlawful for any person to make any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made, in the light of the circum*557stances under which they are made, not misleading, or to engage in any fraudulent, deceptive, or manipulative acts or practices, in connection with any tender offer or request or invitation for tenders, or any solicitation of security holders in opposition to or in favor of any such offer, request, or invitation. The Commission shall, for the purposes of this subsection, by rules and regulations define, and prescribe means reasonably designed to prevent, such acts and practices as are fraudulent, deceptive, or manipulative.
15 U.S.C. § 78n(e). The first sentence of section 14(e) is a self-operative provision, which Congress enacted as part of the Williams Act, Pub.L. No. 90-439, 82 Stat. 454 (1968). Congress added the second sentence, a rulemaking provision, in 1970. Section 23(a)(1), in turn, authorizes the SEC “to make such rules and regulations as may be necessary or appropriate to implement the provisions of this chapter for which [it is] responsible or for the execution of the functions vested in [it] by this chapter.” 15 U.S.C. § 78w(a)(l).
Acting pursuant to the authority granted by sections 14(e) and 23(a)(1), the SEC promulgated Rule 14e-3 in 1980. Rule 14e-3(a), the subsection under which Chest-man was convicted, provides:
If any person has taken a substantial step or steps to commence, or has commenced, a tender offer (the “offering person”), it shall constitute a fraudulent, deceptive or manipulative act or practice within the meaning of section 14(e) of the Act for any other person who is in possession of material information relating to such tender offer which information he knows or has reason to know is nonpublic and which he knows or has reason to know has been acquired directly or indirectly from:
(1) The offering person,
(2) The issuer of the securities sought or to be sought by such tender offer, or
(3) Any officer, director, partner or employee or any other person acting on behalf of the offering person or such issuer, to purchase or sell or cause to be purchased or sold any of such securities or any securities convertible into or exchangeable for any such securities or any option or right to obtain or to dispose of any of the foregoing securities, unless within a reasonable time prior to any purchase or sale such information and its source are publicly disclosed by press release or otherwise.
17 C.F.R. § 240.14e-3(a).
One violates Rule 14e-3(a) if he trades on the basis of material nonpublic information concerning a pending tender offer that he knows or has reason to know has been acquired “directly or indirectly” from an insider of the offeror or issuer, or someone working on their behalf. Rule 14e-3(a) is a disclosure provision. It creates a duty in those traders who fall within its ambit to abstain or disclose, without regard to whether the trader owes a pre-existing fiduciary duty to respect the confidentiality of the information. Chestman claims that the SEC exceeded its authority in drafting Rule 14e-3(a) — more specifically, in drafting a rule that dispenses with one of the common law elements of fraud, breach of a fiduciary duty.
In reviewing this claim, our scope of review is limited. “If Congress has explicitly left a gap for the agency to fill, there is an express delegation of authority to the agency to elucidate a specific provision of the statute by regulation. Such legislative regulations are given controlling weight unless they are arbitrary, capricious, or manifestly contrary to the statute.” Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 843-44, 104 S.Ct. 2778, 2781-83, 81 L.Ed.2d 694 (1984) (upholding the EPA’s construction of the Clean Air Act term “stationary source”). When Congress delegates to an agency the power to promulgate rules,
the [agency] adopts regulations with legislative effect. A reviewing court is not free to set aside those regulations simply because it would have interpreted the statute in a different manner....
The [rule] is therefore entitled to more than mere deference or weight. It can be set aside only if the [agency] exceeded *558[its] statutory authority or if the regulation is “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.”
Batterton v. Francis, 432 U.S. 416, 425-26, 97 S.Ct. 2399, 2405-06, 53 L.Ed.2d 448 (1977) (internal citations omitted) (quoting 5 U.S.C. § 706(2)(A), (C)) (upholding the power of the Secretary of Health, Education and Welfare to prescribe “standards” for determining what constitutes “unemployment” for purposes of benefit eligibility). We thus will reject only those rules that are “ ‘inconsistent with the statutory mandate or that frustrate the policy that Congress sought to implement.’ ” Securities Industry Ass’n v. Board of Governors, 468 U.S. 137, 143, 104 S.Ct. 2979, 2982, 82 L.Ed.2d 107 (1984) (quoting Federal Election Comm’n v. Democratic Senatorial Campaign Comm., 454 U.S. 27, 32, 102 S.Ct. 38, 42, 70 L.Ed.2d 23 (1981)). See also 2 K. Davis, Administrative Law Treatise § 7:8, at 37 (2d ed. 1979) (noting the deferential standard of review for “legislative rules”). Furthermore, we remain mindful that, in construing legislation, we must “ ‘give effect, if possible, to every clause and word of a statute.’ ” United States v. Menasche, 348 U.S. 528, 538-39, 75 S.Ct. 513, 520, 99 L.Ed. 615 (1955) (quoting Montclair v. Ramsdell, 107 U.S. 147, 152, 2 S.Ct. 391, 395, 27 L.Ed. 431 (1882)). Keeping these principles in mind, we consider whether Congress authorized the SEC to enact Rule 14e-3(a).
The plain language of section 14(e) represents a broad delegation of rulemaking authority. The statute explicitly directs the SEC to “define” fraudulent practices and to “prescribe means reasonably designed to prevent” such practices. It is difficult to see how the power to “define” fraud could mean anything less than the power to “set forth the meaning of” fraud in the tender offer context. See Webster’s Third New International Dictionary 592 (1971). This delegation of rulemaking responsibility becomes a hollow gesture if we cabin the SEC’s rulemaking authority, as Chestman urges we should, by common law definitions of fraud. Under Chestman’s construction of the statute, the separate grant of rulemaking power would be rendered superfluous because the SEC could never define as fraud anything not already prohibited by the self-operative provision. Such a narrow construction of the congressional grant of authority would cramp the SEC’s ability to define fraud flexibly in the context of the discrete and highly sensitive area of tender offers. And such a delegation of “power,” paradoxically, would allow the SEC to limit, but not extend, a trader’s duty to disclose.
Even if we were to accept the argument that the SEC’s definitional authority is circumscribed by common law fraud, which we do not, the SEC’s power to “prescribe means reasonably designed to prevent” fraud extends the agency’s rulemaking authority further. The language of this portion of section 14(e) is clear. The verb “prevent” has a plain meaning: “[T]o keep from happening or existing especially] by precautionary measures.” Webster’s New Third International Dictionary 1798 (1971). A delegation of authority to enact rules “reasonably designed to prevent” fraud, then, necessarily encompasses the power to proscribe conduct outside the purview of fraud, be it common law or SEC-defined fraud. Because the operative words of the statute, “define” and “prevent,” have clear connotations, the language of the statute is sufficiently clear to be dispositive here. Chevron, 467 U.S. at 842-43, 104 S.Ct. at 2781-82. We note, however, other factors that bolster our interpretation.
Nothing in the legislative history of section 14(e) indicates that the SEC frustrated congressional intent by enacting Rule 14e-3(a). To the contrary, what legislative history there is suggests that Congress intended to grant broad rulemaking authority to the SEC in this instance.
As originally enacted, section 14(e) was part of the Williams Act. The Williams Act, the Supreme Court has concluded, was “a disclosure provision,” Piper v. Chris-Craft Indus., Inc., 430 U.S. 1, 27, 97 S.Ct. 926, 942, 51 L.Ed.2d 124 (1977), whose “sole purpose ... was the protection of investors who are confronted with a tender *559offer.” Id. at 35, 97 S.Ct. at 946. Although the legislative history “specifically concerning § 14(e) is sparse,” Schreiber v. Burlington Northern, Inc., 472 U.S. 1, 11, 105 S.Ct. 2458, 2464, 86 L.Ed.2d 1 (1985), the congressional reports indicate that section 14(e) was directed at ensuring “full disclosure” in connection with the trading of the securities of a tender offer target. Id. (quoting H.R.Rep. No. 1711, 90th Cong., 2nd Sess. 11 (1968); S.Rep. No. 550, 90th Cong., 1st Sess. 11 (1967) U.S.Code Cong. & Admin.News 1968, 2811) (emphasis supplied by Supreme Court). Analyzing the legislative history of section 14(e), the Schreiber Court explained:
Section 14(e) adds a “broad antifraud prohibition” modeled on the antifraud provisions of § 10(b) of the Act and Rule 10b-5_ It supplements the more precise disclosure provisions found elsewhere in the Williams Act, while requiring disclosure more explicitly addressed to the tender offer context than that required by § 10(b).
Id. at 10-11, 105 S.Ct. at 2463-64 (quoting Piper, 430 U.S. at 24, 97 S.Ct. at 940) (footnote omitted). The “very purpose of the [Williams] Act,” we have said, was “informed decisionmaking by shareholders.” Lewis v. McGraw, 619 F.2d 192, 195 (2d Cir.) (per curiam), cert. denied, 449 U.S. 951, 101 S.Ct. 354, 66 L.Ed.2d 214 (1980).
The legislative history of the 1970 amendment to section 14(e), the rulemaking provision, likewise suggests a broad grant of congressional authority. Senator Williams, the bill’s sponsor, asserted the “utmost necessity” of granting “full rule-making powers” to the SEC in the area of tender offers. 116 Cong.Rec. 3024 (Feb. 10, 1970). The amendment “would add to the Commission’s rulemaking power,” Senator Williams explained, “and enable it to deal promptly and ... flexib[ly]” with problems in that area. Hearings on S.3431 before the Subcom. on Securities of the Senate Comm, on Banking and Currency, 91st Cong., 2nd Sess. 2 (1970) [hereinafter S.3431 Hearings]; see also H.R.Rep. No. 1655, 91st Cong., 2nd Sess. 4, reprinted in 1970 U.S.Code Cong. & Admin.News 5025, 5028. During hearings on the 1970 Amendment, moreover, Senator Williams asked the SEC chairman for “examples of the fraudulent, deceptive, or manipulative practices used in tender offers which the proposed [SEC] rulemaking powers would prevent,” noting that the information “would be most helpful to the committee as we continue developing this legislation.” S. 3431 Hearings, at 11. Responding to the Senator’s request, the SEC identified one such “problem” that the SEC’s proposed rulemaking authority would be used to prevent:
The person who has become aware that a tender bid is to be made, or has reason to believe that such bid will be made, may fail to disclose material facts with respect thereto to persons who sell to him securities for which the tender bid is to be made.
Id. at 12. Notably, this hypothetical does not contain any requirement that the trader breach a fiduciary duty. All told, the legislative history indicates that Congress intended to grant broad rulemaking power to the SEC under section 14(e). This delegation of authority was aimed at promoting full disclosure in the tender offer context and, in so doing, contributing to informed decisionmaking by shareholders.
In promulgating Rule 14e-3(a), the SEC acted well within the letter and spirit of section 14(e). Recognizing the highly sensitive nature of tender offer information, its susceptibility to misuse, and the often difficult task of ferreting out and proving fraud, Congress sensibly delegated to the SEC broad authority to delineate a penumbra around the fuzzy subject of tender offer fraud. See generally Loewenstein, Section 14(e) of the Williams Act and the Rule 10b-5 Comparisons, 71 Geo.L.J. 1311, 1356 (1983) (“It is difficult to see why Congress would grant such broad powers to the SEC if the SEC was not expected to have some leeway in utilizing its powers.”). To be certain, the SEC’s rulemaking power under this broad grant of authority is not unlimited. The rule must still be “reasonably related to the purposes of the enabling legislation.” Mourning v. Family Publications Service, Inc., 411 U.S. 356, 369, 93 *560S.Ct. 1652, 1661, 36 L.Ed.2d 318 (1973) (quoting Thorpe v. Housing Authority of the City of Durham, 393 U.S. 268, 280-81, 89 S.Ct. 518, 525-26, 21 L.Ed.2d 474 (1969)). The SEC, however, in adopting Rule 14e-3(a), acted consistently with this authority. While dispensing with the subtle problems of proof associated with demonstrating fiduciary breach in the problematic area of tender offer insider trading, the Rule retains a close nexus between the prohibited conduct and the statutory aims.
Legislative activity since the SEC promulgated Rule 14e-3(a) further supports the Rule’s validity. Congress acknowledged and left untouched the force of Rule 14e-3(a) when it enacted the Insider Trading Sanctions Act of 1984 (ITSA), 15 U.S.C. § 78u-l. ITSA imposes treble civil penalties on those who violate SEC rules “by purchasing or selling a security while in possession of material, nonpublic information,” id. § 78u-l(a)(l), an activity covered by Rule 14e-3(a). Congress, in fact, was advised that a Rule 14e-3 violation would trigger treble damages under ITSA. See H.R.Rep. No. 355, 98th Cong., 1st Sess. 4, 11, 13 n. 20, reprinted in 1984 U.S.Code Cong. & Admin.News 2274, 2277, 2284, 2286 n. 20; see also H.R.Rep. No. 910, 100th Cong., 2nd Sess. 14, reprinted in 1988 U.S.Code Cong. & Admin.News 6043, 6051 (in enacting the Insider Trading and Securities Fraud Enforcement Act of 1988, Congress noted that Rule 14e-3 had triggered efforts by private securities firms “to detect insider trading and other market abuses by their employees”).
These references to Rule 14e-3 during debates on proposed insider trading legislation may not amount to congressional ratification of the Rule, see Red Lion Broadcasting Co. v. FCC, 395 U.S. 367, 381-82, 89 S.Ct. 1794, 1801-03, 23 L.Ed.2d 371 (1969), but they do support the Rule’s validity. Congressional silence in the face of administrative construction of a statute lends support to the validity of that interpretation. See United States v. Rutherford, 442 U.S. 544, 554 n. 10, 99 S.Ct. 2470, 2476 n. 10, 61 L.Ed.2d 68 (1979) (“once an agency’s statutory construction has been ‘fully brought to the attention of the public and the Congress,’ and the latter has not sought to alter that interpretation although it has amended the statute in other respects, then presumably the legislative intent has been correctly discerned”) (citations omitted); Red Lion Broadcasting Co., 395 U.S. at 381, 89 S.Ct. at 1802; Zemel v. Rusk, 381 U.S. 1, 11, 85 S.Ct. 1271, 1278, 14 L.Ed.2d 179 (1965) (“Congress’ failure to repeal or revise in the face of ... administrative interpretation has been held to constitute persuasive evidence that that interpretation is the one intended by Congress.”).
In sum, the language and legislative history of section 14(e), as well as congressional inactivity toward it since the SEC promulgated Rule 14e-3(a), all support the view that Congress empowered the SEC to prescribe a rule that extends beyond the common law.
Chestman points to nothing in the language or legislative history of section 14(e) to refute our construction of the statute. Instead he relies principally on Chiarella v. United States, 445 U.S. 222,100 S.Ct. 1108, 63 L.Ed.2d 348 (1980), and Schreiber, 472 U.S. 1, 105 S.Ct. 2458, to advance his argument that section 14(e) parallels common law fraud. That reliance is misplaced.
Chiarella considered whether trading stock on the basis of material nonpublic information in the absence of a fiduciary breach constitutes fraud under section 10(b). Confronted with both congressional and SEC silence on the issue, see section 10(b) and Rule 10b-5, the Court applied common law principles of fraud. It concluded, based on those principles, that liability under section 10(b) requires a fiduciary breach.
Several factors limit Chiarella’s prece-dential value in this case. First, Chiarella of course concerns section 10(b), not section 14(e). Section 10(b) is a general antifraud statute, while section 14(e) is an antifraud provision specifically tailored to the field of tender offers, an area of the securities industry that, the Williams Act makes clear, deserves special regulation.
*561Second, section 14(e) evinces a clear indication of congressional intent, while section 10(b) does not. See Chiarella, 445 U.S. at 226, 100 S.Ct. at 1113 (“neither the legislative history nor the statute itself affords specific guidance for the resolution of this case”). Section 10(b) speaks in terms of the use “in connection with the purchase or sale of any security” of “any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the [SEC] may prescribe as necessary or appropriate in the public interest or for the protection of investors.” 15 U.S.C. § 78j(b). Section 14(e) directly proscribes, in self-operative fashion, “any fraudulent, deceptive, or manipulative acts or practices” in connection with a tender offer. Then, in a separate sentence, the statute directs the SEC to draft rules to define these practices and to prevent them: “The [SEC] shall, for the purposes of this subsection, by rules and regulations define, and prescribe means reasonably designed to prevent, such acts and practices as are fraudulent, deceptive, or manipulative.” The contrast in statutory language is telling. It underscores, first of all, the dubious premise of Chestman’s argument — that section 14(e) was modeled after section 10(b). The two provisions are hardly identical in scope. The language of section 14(e)’s rulemaking provision, instead of tracking section 10(b), in fact mirrors section 15(c)(2), 15 U.S.C. § 78o(c)(2), which concerns broker-dealer relations. “The language of the addition to section 14(e) is identical to that contained in section 15(c)(2) of the Securities Exchange Act concerning practices of brokers and dealers in securities transactions in the over-the-counter markets.” H.R.Rep. No. 1655, 91st Cong., 2nd Sess. 4, reprinted in 1970 U.S.Code Cong. & Admin.News 5025, 5028. The contrast also illustrates that section 14(e) provides a more compelling legislative delegation to the SEC to prescribe rules than does section 10(b). While section 10(b) refers to such rules as the SEC “may prescribe as necessary or appropriate,” section 14(e) commands the SEC to prescribe rules that will “define” and “prevent” fraud. See Loewenstein, supra, 71 Geo.L.J. at 1356 (“By comparison, the Commission’s rule-making authority under section 10(b) does not include the power to define manipulative or deceptive” acts or to adopt pro-phylatic measures.).
Indeed, in Chiarella, the Court even distinguished sections 10(b) and 14(e). The Court acknowledged that the SEC had recently acted pursuant to its rulemaking authority under section 14(e) to bar warehousing, a form of insider trading involving tender offers:
In this case, as in warehousing, a buyer of securities purchases stock in a target corporation on the basis of market information which is unknown to the seller. In both of these situations, the seller’s behavior presumably would be altered if he had the nonpublic information. Significantly, however, the Commission has acted to bar warehousing under its authority to regulate tender offers [citing proposed Rule 14e-3] after recognizing that action under § 10(b) would rest on a “somewhat different theory” than that previously used to regulate insider trading as fraudulent activity.
Chiarella, 445 U.S. at 234, 100 S.Ct. at 1117-18 (footnotes omitted). That “somewhat different theory” is one that does not embrace “any fiduciary duty to [the target] company or its shareholders.” 1 SEC Institutional Investor Study Report, H.R.Doc. No. 64, 92nd Cong. 1st Sess., pt. 1, at xxxii (1971) (cited in Chiarella, 445 U.S. at 234 n. 19, 100 S.Ct. at 1118 n. 19). Significantly, the Chiarella Court did not disapprove of this exercise of the SEC’s rulemaking power under section 14(e).
Finally, Chiarella faced not only statutory silence on the issue before it but also administrative reticence. Neither the language of Rule 10b-5, SEC discussions of the rule, nor administrative interpretations of the rule offered any evidence that the SEC, in drafting Rule 10b-5, intended the rule to go beyond common law fraud. See Rule 10b-5 (referring to “artifice to defraud” and to “fraud ... upon any person”); see also Chiarella, 445 U.S. at 226, 100 S.Ct. at 1113 (“When Rule 10b-5 was promulgated in 1942, the SEC did not dis*562cuss the possibility that failure to provide information might run afoul of § 10(b).”) (footnote omitted); id. at 230, 100 S.Ct. at 1115; id. 445 U.S. at 233, 100 S.Ct. at 1117 (“neither the Congress nor the Commission ever has adopted a parity-of-information rule”). The language of Rule 14e-3(a), on the other hand, reveals express SEC intent to proscribe conduct not covered by common law fraud. And “[presumably the SEC perceived Rule 14e-3 as a valid exercise of its statutory authority.” United States v. Marcus Schloss & Co., Inc., 710 F.Supp. 944, 956 (S.D.N.Y.1989).
Thus, the question presented here differs markedly from that presented in Chiarella. It is not whether section 14(e), standing alone, prohibits insider trading in the absence of a fiduciary breach. It is whether section 14(e)’s broad rulemaking provision, together with SEC action under that authority in the form of Rule 14e-3(a), represent a valid exercise of administrative rule-making. In Chiarella, the Court refused to recognize “a general duty between all participants in market transactions to forgo actions based on material nonpublic information ... absent some explicit evidence of congressional intent.” 445 U.S. at 233, 100 S.Ct. at 1117. Our task is easier. Rule 14e-3(a) creates a narrower duty than that once proposed for Rule 10b-5 — a parity of information rule — and, as the language and legislative history of section 14(e) make clear, the rule has Congress’ blessing.
Equally unavailing is Chestman’s reliance on Schreiber. The Schreiber case arose from a hostile tender offer initiated by Burlington Northern, Inc. for El Paso Gas Co. stock. After a majority of El Paso’s shareholders subscribed to the tender offer, Burlington rescinded its offer, deciding to enter into a friendly takeover agreement with El Paso. Pursuant to its agreement with El Paso, Burlington substituted a new tender offer, which was soon oversubscribed. Several shareholders who had tendered their shares during the first tender offer received a diminished payment due to the oversubscription of the second tender offer. They claimed that Burlington’s conduct violated section 14(e) as a “manipulative” distortion of the market for El Paso stock. Absent congressional guidance concerning the meaning of the term “manipulative,” it fell to the Court to determine whether misrepresentation or nondisclosure is a necessary element of a violation of section 14(e). Schreiber, 472 U.S. at 6-8, 105 S.Ct. at 2461-62. The Court looked to the ordinary and common law meaning of the term, as well as the legislative history of section 14(e), with its focus on nondisclosure. Relying on these sources, the Court held that misrepresentation or nondisclosure was an indispensable element of a section 14(e) violation. Id. at 8, 105 S.Ct. at 2462.
Chestman claims that Schreiber demonstrates that section 14(e), like section 10(b), projects no further than common law fraud. To support this argument, he points to a statement in Schreiber indicating that section 14(e) is “modeled on the antifraud provisions of § 10(b).” Id. at 10, 105 S.Ct. at 2463. What Chestman ignores, however, is that Schreiber contrasted as well as compared the two statutes. Following the language Chestman quotes, the Court stated that section 14(e) “supplements” the other disclosure provisions in the Williams Act and requires “disclosure more explicitly addressed to the tender offer context than that required by § 10(b).” Id. at 10-11, 105 S.Ct. at 2464. In addition, the Court’s reference to the similarity between sections 10(b) and 14(e) only refers to section 14(e)’s substantive provision. Section 10(b), as we have emphasized, lacks a separate rulemaking grant akin to section 14(e). Moreover, even to the extent section 10(b) may be accurately described as the father of section 14(e), as well as all later antifraud provisions under the 1934 Act, we cannot agree that section 10(b) therefore confines section 14(e), and its other antifraud progeny, to an identical reach.
Chestman also attempts to draw support from footnote 11 in Schreiber. There, in rejecting petitioner’s argument that the 1970 amendment to section 14(e), the rule-making provision, would be meaningless if section 14(e) concerned disclosure only, the Court observed:
*563In adding the 1970 amendment, Congress simply provided a mechanism for defining and guarding against those acts and practices which involve material misrepresentation or nondisclosure. The amendment gives the [SEC] latitude to regulate nondeceptive activities as a “reasonably designed” means of preventing manipulative acts, without suggesting any change in the meaning of the term “manipulative” itself.
Id. at 11 n. 11, 105 S.Ct. at 2464 n. 11. Whatever may be gleaned from the footnote on the SEC’s definitional authority under section 14(e), the footnote plainly endorses the SEC’s authority to draft prophylactic rules under section 14(e). It states that the rulemaking provision “gives the [SEC] latitude to regulate nondecep-tive activities as a ‘reasonably designed’ means of preventing manipulative acts.” Id. (emphasis added). Chestman offers no persuasive explanation why the authority “to regulate nondeceptive activities” would not also allow the SEC to regulate non-fraudulent conduct.
As for the SEC’s authority to define the operative words of section 14(e), Schreiber seems to be saying only that section 14(e)’s rulemaking provision does not itself change the common law meaning of “manipulative.” The Court was not confronted with the question raised here — whether SEC action pursuant to the rulemaking delegation exceeds statutory authority — because the petitioner did not point to any SEC rules drafted under section 14(e) that covered Burlington’s activities. Moreover, even if we were to agree with Chestman that, under Schreiber, the common law confines the SEC in defining “manipulative,” we would still uphold the validity of Rule 14e-3(a). In Schreiber, the definition of “manipulative” proffered by the plaintiff would have eliminated a requirement that there be a nondisclosure or material misrepresentation, the primary evils at which section 14(e) took aim. Rule 14e-3(a), in contrast, does not stray from congressional intent; it remains a disclosure provision.
Therefore, based on the plain language of section 14(e), and congressional activity both before section 14(e) was enacted and after Rule 14e-3(a) was promulgated, we hold that the SEC did not exceed its statutory authority in drafting Rule 14e-3(a).
2. Sufficiency of the Evidence
Chestman also argues that the evidence was insufficient to sustain his Rule 14e-3(a) convictions. In an argument raised for the first time in his in banc brief, Chestman contends that the government failed to present sufficient evidence to show that he knew that the information had been acquired “directly or indirectly” from the Waldbaum company, a Waldbaum company insider, or a person acting on the company’s behalf. This argument merits only brief consideration.
The jury heard the following evidence. Chestman knew that Keith Loeb was a member of the Waldbaum family. Chest-man knew that the information concerned the Waldbaum family business. He also knew that the information was not publicly available. Furthermore, he had heard Loeb describe the information as “definite” and “accurate.” While more than one inference could be drawn from this evidence, the jury’s conclusion was far from an irrational one. A jury could reasonably infer that Chestman knew that the information originated from a Waldbaum insider. We disagree with Chestman’s intimation that Loeb had to describe the information to Chestman as “confidential.” A description of the information as “definite” and “accurate,” together with Chestman’s knowledge that Loeb was a Waldbaum relative, provided the crucial basis from which to infer confidentiality. It was not necessary that Chestman be told the family channels through which the information had trav-elled. In sum, Chestman’s knowledge of Loeb’s status as a Waldbaum'family member and the nature of the information conveyed provided sufficient evidence from which a .rational trier of fact could infer that the information originated, “directly or indirectly,” from a Waldbaum insider.
3. Due Process
Chestman next argues that his Rule 14e-3(a) convictions violate due process be*564cause he did not have fair notice that his conduct was criminal. Given the explicit language of Rule 14e-3(a), we also reject this claim.
The purpose of the “fair notice” requirement of due process is “to give a person of ordinary intelligence fair notice that his contemplated conduct is forbidden by the statute.” United States v. Harriss, 347 U.S. 612, 617, 74 S.Ct. 808, 812, 98 L.Ed. 989 (1954). That requirement was met here. As we have seen, Rule 14e-3(a) explicitly proscribes trading on the basis of material nonpublic information derived from insider sources. Unlike Rule 10b-5, Rule 14e-3(a) is not a general, catchall provision. It targets specific conduct arising in a unique context — tender offers. The language of the rule gave Chestman, a sophisticated stockbroker, fair notice that the conduct in which he engaged was criminal.
That leaves Chestman with the dubious argument that, while he had notice that Rule 14e-3(a) prohibited his activity, he could not have known whether a court would find the rule valid. Due process does not extend this far. When statutory language provides notice that conduct is illegal, the notice requirements of due process have been met. The government need not await every conceivable challenge to a law’s validity before it prosecutes conduct covered by a statute. Chestman “treaded closely enough along proscribed lines ... to find that [he] had adequate notice of the illegality of [his] acts.” United States v. Carpenter, 791 F.2d 1024, 1034 (2d Cir. 1986), aff'd, 484 U.S. 19, 108 S.Ct. 316, 98 L.Ed.2d 275 (1987).
B. Rule 10b-5
Chestman’s Rule 10b-5 convictions were based on the misappropriation theory, which provides that “one who misappropriates nonpublic information in breach of a fiduciary duty and trades on that information to his own advantage violates Section 10(b) and Rule 10b-5.” SEC v. Materia, 745 F.2d 197, 203 (2d Cir.1984), cert. denied, 471 U.S. 1053, 105 S.Ct. 2112, 85 L.Ed.2d 477 (1985). With respect to the shares Chestman purchased on behalf of Keith Loeb, Chestman was convicted of aiding and abetting Loeb’s misappropriation of nonpublic information in breach of a duty Loeb owed to the Waldbaum family and to his wife Susan. As to the shares Chestman purchased for himself and his other clients, Chestman was convicted as a “tippee” of that same misappropriated information. Thus, while Chestman is the defendant in this case, the alleged misap-propriator was Keith Loeb. The government agrees that Chestman’s convictions cannot be sustained unless there was sufficient evidence to show that (1) Keith Loeb breached a duty owed to the Waldbaum family or Susan Loeb based on a fiduciary or similar relationship of trust and confidence, and (2) Chestman knew that Loeb had done so. We have heretofore never applied the misappropriation theory — and its predicate requirement of a fiduciary breach — in the context of family relationships. As a prologue to that analysis, we canvass past Rule 10b-5 jurisprudence.
Section 10(b) prohibits the use “in connection with the purchase or sale of any security ... [of] any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the Commission may prescribe.” 15 U.S.C. § 78j(b). Pursuant to that mandate, the SEC promulgated Rule 10b-5, which, in pertinent part, makes it unlawful “[t]o employ any device, scheme, or artifice to defraud” or “[t]o engage in any act ... which operates ... as a fraud or deceit upon any person, in connection with the purchase or sale of any security.” 17 C.F.R. § 240.-10b-5 (1988). While more than one interpretation has been given to this expansive language, fraud has remained the centerpiece of a Rule 10b-5 criminal violation. At this juncture, two general theories of Rule 10b-5 fraud have emerged to fill the interstitial gaps of the rule.
1. Traditional Theory of Rule 10b-5 Liability
The traditional theory of insider trader liability derives principally from the Supreme Court’s holdings in Chiarella, 445 *565U.S. 222, 100 S.Ct. 1108, and Dirks v. SEC, 463 U.S. 646, 103 S.Ct. 3255, 77 L.Ed.2d 911 (1983). A securities trader commits Rule 10b-5 fraud, the Chiarella Court held, only if he “fails to disclose material information prior to the consummation of a transaction ... when he is under a duty to do so.” Chiarella, 445 U.S. at 228, 100 S.Ct. at 1114. The Chiarella Court then delineated when a person possessing material nonpublic information owes such a duty — what it called “[t]he obligation to disclose or abstain” from trading. Id. at 227, 100 S.Ct. at 1114. It held that this duty “does not arise from the mere possession of nonpublic market information.” Id. at 235, 100 S.Ct. at 1118. That is, the duty inquiry does not turn on whether the parties to the transaction have “equal information.” Dirks, 463 U.S. at 657, 103 S.Ct. at 3263 (construing Chiarella). Rather, a duty to disclose or abstain arises only from “ ‘a fiduciary or other similar relation of trust and confidence between [the parties to the transaction].’ ” Chiarella, 445 U.S. at 228, 100 S.Ct. at 1114 (quoting Restatement (Second) of Torts § 551(2)(a) (1976)).
In Dirks, an action concerning the liability of a tippee of material nonpublic information, the Court built on its holding in Chiarella. Dirks again rejected a parity of information theory of Rule 10b-5 liability, reiterating the “requirement of a specific relationship between the shareholders and the individual trading on inside information.” Dirks, 463 U.S. at 655, 103 S.Ct. at 3261. It then examined when a tippee inherits a fiduciary duty to the corporation’s shareholders to disclose or refrain from trading. Noting the “derivative” nature of tippee liability, id. at 659, 103 S.Ct. at 3264, the Court held that tippee liability attaches only when an “insider has breached his fiduciary duty to the shareholders by disclosing the information to the tippee and the tippee knows or should know that there has been a breach.” Id. at 660,103 S.Ct. at 3264.
Dirks established, in dictum, an additional means by which erstwhile outsiders become fiduciaries of a corporation’s shareholders. Justice Powell explained:
Under certain circumstances, such as where corporate information is revealed legitimately to an underwriter, accountant, lawyer, or consultant working for the corporation, these outsiders may become fiduciaries of the shareholders. The basis for recognizing this fiduciary duty is not simply that such persons acquired nonpublic corporate information, but rather that they have entered into a special confidential relationship in the conduct of the business of the enterprise and are given access to information solely for corporate purposes.... For such a duty to be imposed, however, the corporation must expect the outsider to keep the disclosed nonpublic information confidential, and the relationship at least must imply such a duty.
Id. at 655 n. 14, 103 S.Ct. at 3262 n. 14 (citations omitted). This theory clothes an outsider with temporary insider status when the outsider obtains access to confidential information solely for corporate purposes in the context of “a special confidential relationship.” The temporary insider thereby acquires a correlative fiduciary duty to the corporation’s shareholders.
Binding these strands of Rule 10b-5 liability are two principles — one, the predicate act of fraud must be traceable to a breach of duty to the purchasers or sellers of securities,2 two, a fiduciary duty does *566not run to the purchasers or sellers solely as a result of one’s possession of material nonpublic information.
2. Misappropriation Theory
The second general theory of Rule 10b-5 liability, the misappropriation theory, has not yet been the subject of a Supreme Court holding,3 but has been adopted in the Second, Third, Seventh and Ninth Circuits. See, e.g., SEC v. Cherif, 933 F.2d 403 (7th Cir.1991); SEC v. Clark, 915 F.2d 439 (9th Cir.1990); Rothberg v. Rosenbloom, 771 F.2d 818 (3d Cir.1985), rev’d on other grounds after remand, 808 F.2d 252 (3d Cir.1986), cert. denied, 481 U.S. 1017, 107 S.Ct. 1895, 95 L.Ed.2d 501 (1987); United States v. Newman, 664 F.2d 12 (2d Cir. 1981), aff'd after remand, 722 F.2d 729 (2d Cir.1983), cert. denied, 464 U.S. 863, 104 S.Ct. 193, 78 L.Ed.2d 170 (1983). Under this theory, a person violates Rule 10b-5 when he misappropriates material nonpublic information in breach of a fiduciary duty or similar relationship of trust and confidence and uses that information in a securities transaction. See, e.g., Carpenter, 791 F.2d at 1028-29; Materia, 745 F.2d at 201; Newman, 664 F.2d at 17-18. In contrast to Chiarella and Dirks, the misappropriation theory does not require that the buyer or seller of securities be defrauded. Newman, 664 F.2d at 17. Focusing on the language “fraud or deceit upon any person” (emphasis added), we have held that the predicate act of fraud may be perpetrated on the source of the nonpublic information, even though the source may be unaffiliated with the buyer or seller of securities. See Carpenter, 791 F.2d at 1032. To date we have applied the theory only in the context of employment relationships. See Carpenter, 791 F.2d at 1032 (financial columnist breached duty to his newspaper); Materia, 745 F.2d at 202 (copyholder breached duty to his printing company); Newman, 664 F.2d at 17 (investment banker breached duty to his firm). District courts in this Circuit have applied the theory in other settings as well as in the employment context. See, e.g., United States v. Willis, 737 F.Supp. 269 (S.D.N.Y.1990) (denying motion to dismiss indictment of psychiatrist who traded on the basis of information obtained from patient, in breach of duty arising from relationship of trust and confidence); United States v. Reed, 601 F.Supp. 685 (S.D.N.Y.), rev’d on other grounds, 773 F.2d 477 (2d Cir.1985) (allegation that son breached fiduciary duty to father, a corporate director, withstood motion to dismiss indictment); SEC v. Musella, 578 F.Supp. 425 (S.D.N.Y.1984) (office services manager of law firm breached duty to law firm and its clients by trading on the basis of material nonpublic information acquired in the course of his employment).
One point at which the misappropriation theory and the traditional theory of insider trading merge warrants brief consideration. Our first applications of the misappropriation theory, in Newman and Mate-ria, concerned conduct that occurred before the Supreme Court’s holding in Dirks. Dirks noted that an outsider could obtain temporary insider status by gaming access to confidential information through certain relationships with a corporation — as, for example, an underwriter, lawyer or consultant. 463 U.S. at 655 n. 14, 103 S.Ct. at 3262 n. 14. A temporary insider theory of prosecution might well have covered the activities of the investment banker in Newman and the printer in Materia. In Newman and Materia, the defendants appeared to have “entered into a special confidential relationship in the conduct of the business of the enterprise and [were] given access to information solely for corporate purposes.” Dirks, 463 U.S. at 655 n. 14, 103 S.Ct. at 3262 n. 14. In view of the *567overlap between Newman and Materia on the one hand and the Dirks concept of temporary insiders on the other, we arguably did not break ranks with the traditional theory of insider trading until our holding in Carpenter. In Carpenter none of the prongs of liability under the traditional theory applied. That is, the defendants did not owe the people with whom they traded a duty to disclose or abstain from trading— absent resurrection of the twice-rejected parity of information theory. Carpenter, then, represents the first fact pattern we have considered that is clearly beyond the pale of the traditional theory of insider trading.
After Carpenter, the fiduciary relationship question takes on special importance. This is because a fraud-on-the-source theory of liability extends the focus of Rule 10b-5 beyond the confined sphere of fiduciary/shareholder relations to fiduciary breaches of any sort, a particularly broad expansion of 10b-5 liability if the add-on, a “similar relationship of trust and confidence,” is construed liberally. One concern triggered by this broadened inquiry is that fiduciary duties are circumscribed with some clarity in the context of shareholder relations but lack definition in other contexts. See generally Reed, 601 F.Supp. 685 (and authorities cited therein). Tethered to the field of shareholder relations, fiduciary obligations arise within a narrow, principled sphere. The existence of fiduciary duties in other common law settings, however, is anything but clear. Our Rule 10b-5 precedents under the misappropriation theory, moreover, provide little guidance with respect to the question of fiduciary breach, because they involved egregious fiduciary breaches arising solely in the context of employer/employee associations. See Carpenter, 791 F.2d at 1028 (“It is clear that defendant Winans ... breached a duty of confidentiality to his employer”); Newman, 664 F.2d at 17 (“we need spend little time on the issue of fraud and deceit”); Materia, 745 F.2d at 201 (same). For these reasons we tread cautiously in extending the misappropriation theory to new relationships, lest our efforts to construe Rule 10b-5 lose method and predictability, taking over “the whole corporate universe.” United States v. Chiarella, 588 F.2d 1358, 1377 (2d Cir.1978) (Meskill, J., dissenting) (quoting Santa Fe Industries, Inc. v. Green, 430 U.S. 462, 480, 97 S.Ct. 1292, 1304, 51 L.Ed.2d 480 (1977)), rev’d, 445 U.S. 222, 100 S.Ct. 1108, 63 L.Ed.2d 348 (1980).
3. Fiduciary Duties and Their Functional Equivalent
Against this backdrop, we turn to our central inquiry — what constitutes a fiduciary or similar relationship of trust and confidence in the context of Rule 10b-5 criminal liability? We begin by noting two factors that do not themselves create the necessary relationship.
First, a fiduciary duty cannot be imposed unilaterally by entrusting a person with confidential information. Walton v. Morgan Stanley & Co., 623 F.2d 796, 799 (2d Cir.1980) (applying Delaware law). Walton concerned the conduct of an investment bank, Morgan Stanley. While investigating possible takeover targets for one of its clients, Morgan Stanley obtained unpublished material information (internal earnings reports) on a confidential basis from a prospective target, Olinkraft. After its client abandoned the planned takeover, Morgan Stanley was charged with trading in Olinkraft’s stock on the basis of the confidential information. Observing that the parties had bargained at “arm’s length” and that there had not been a preexisting agreement of confidentiality between Morgan Stanley and Olinkraft, we rejected the argument that
Morgan Stanley became a fiduciary of Olinkraft by virtue of the receipt of the confidential information.... [T]he fact that the information was confidential did nothing, in and of itself, to change the relationship between Morgan Stanley and Olinkraft’s management. Put bluntly, although, according to the complaint, Olinkraft’s management placed its confidence in Morgan Stanley not to disclose the information, Morgan Stanley owed no duty to observe that confidence.
Walton, 623 F.2d at 799. See also Dirks, 463 U.S. at 662 n. 22, 103 S.Ct. at 3265 n. 22 (citing Walton approvingly as “a case *568turning on the court’s determination that the disclosure did not impose any fiduciary duties on the recipient of the inside information”). Reposing confidential information in another, then, does not by itself create a fiduciary relationship.
Second, marriage does not, without more, create a fiduciary relationship. “ ‘[M]ere kinship does not of itself establish a confidential relation.’ ... Rather, the existence of a confidential relationship must be determined independently of a preexisting family* relationship.” Reed, 601 F.Supp. at 706 (quoting G.G. Bogert, The Law of Trusts and Trustees § 482, at 300-11 (Rev. 2d ed. 1978)) (other citations omitted). Although spouses certainly may by their conduct become fiduciaries, the marriage relationship alone does not impose fiduciary status. In sum, more than the gratuitous reposal of a secret to another who happens to be a family member is required to establish a fiduciary or similar relationship of trust and confidence.
We take our cues as to what is required to create the requisite relationship from the securities fraud precedents and the common law. See Chiarella, 445 U.S. at 227-30, 100 S.Ct. at 1114-16. The common law has recognized that some associations are inherently fiduciary. Counted among these hornbook fiduciary relations are those existing between attorney and client, executor and heir, guardian and ward, principal and agent, trustee and trust beneficiary, and senior corporate official and shareholder. Reed, 601 F.Supp. at 704 (citing Coffee, From Tort to Crime: Some Reflections on the Criminalization of Fiduciary Breaches and the Problematic Line Between Law and Ethics, 19 Am.Crim. L.Rev. 117, 150 (1981); and Scott, The Fiduciary Principle, 37 Cal.L.Rev. 539, 541 (1949)); Black's Law Dictionary 564 (5th ed. 1979). While this list is by no means exhaustive, it is clear that the relationships involved in this case — those between Keith and Susan Loeb and between Keith Loeb and the Waldbaum family — were not traditional fiduciary relationships.
That does not end our inquiry, however. The misappropriation theory requires us to consider not only whether there exists a fiduciary relationship but also whether there exists a “similar relationship of trust and confidence.” As the term “similar” implies, a “relationship of trust and confidence” must share the essential characteristics of a fiduciary association. Absent reference to the adjective “similar,” interpretation of a “relationship of trust and confidence” becomes an exercise in question begging. Consider: when one entrusts a secret (read confidence) to another, there then exists a relationship of trust and confidence. Walton, however, instructs that entrusting confidential information to another does not, without more, create the necessary relationship and its correlative duty to maintain the confidence. A “similar relationship of trust and confidence,” therefore, must be the functional equivalent of a fiduciary relationship. To determine whether such a relationship exists, we must ascertain the characteristics of a fiduciary relationship.
“[A]t the heart of the fiduciary relationship” lies “reliance, and de facto control and dominance.” United States v. Margiotta, 688 F.2d 108, 125 (2d Cir.1982) (citations omitted) (nonpublic office holder found to owe a fiduciary duty to general citizenry, breach of which created predicate for violation of mail fraud statute) (construing New York law), cert. denied, 461 U.S. 913, 103 S.Ct. 1891, 77 L.Ed.2d 282 (1983). The relation “exists when confidence is reposed on one side and there is resulting superiority and influence on the other.” Mobil Oil Corp. v. Rubenfeld, 72 Misc.2d 392, 400, 339 N.Y.S.2d 623, 632 (Civ.Ct.1972) (discussing fiduciary duty in the franchisee context), aff'd, 11 Misc.2d 962, 357 N.Y.S.2d 589 (Sup.Ct.App.1974), rev’d on other grounds, 48 A.D.2d 428, 370 N.Y.S.2d 943 (2d Dep’t 1975), aff'd, 40 N.Y.2d 936, 390 N.Y.S.2d 57, 358 N.E.2d 882 (1976)). One acts in a “fiduciary capacity” when
the business which he transacts, or the money or property which he handles, is not his own or for his own benefit, but for the benefit of another person, as to whom he stands in a relation implying *569and necessitating great confidence and trust on the one part and a high degree of good faith on the other part.
Black’s Law Dictionary 564 (5th ed. 1979). See also 29 U.S.C. § 1002(21)(A) (defining a fiduciary for purposes of ERISA as one “who exercises any discretionary authority or discretionary control”).
A fiduciary relationship involves discretionary authority and dependency: One person depends on another — the fiduciary — to serve his interests. In relying on a fiduciary to act for his benefit, the beneficiary of the relation may entrust the fiduciary with custody over property of one sort or another. Because the fiduciary obtains access to this property to serve the ends of the fiduciary relationship, he becomes duty-bound not to appropriate the property for his own use. What has been said of an agent’s duty of confidentiality applies with equal force to other fiduciary relations: “an agent is subject to a duty to the principal not to use or to communicate information confidentially given him by the principal or acquired by him during the course of or on account of his agency.” Restatement (Second) of Agency § 395 (1958). These characteristics represent the measure of the paradigmatic fiduciary relationship. A similar relationship of trust and confidence consequently must share these qualities.
In Reed, 601 F.Supp. 685, the district court confronted the question whether these principal characteristics of a fiduciary relationship — dependency and influence — were necessary factual prerequisites to a similar relationship of trust and confidence. There a member of the board of directors of Amax, Gordon Reed, disclosed to his son on several occasions confidential information concerning a proposed tender offer for Amax. Allegedly relying on this information, the son purchased Amax stock call options. The son was subsequently indicted for violating, among other things, Rule 10b-5 based on breach of a fiduciary duty arising between the father and son. The son then moved to dismiss the indictment, contending that he did not breach a fiduciary duty to his father. The district court sustained the indictment.
Both the government and Chest-man rely on Reed. The government draws on Reed’s application of the misappropriation theory in the family context and its expansive construction of relationships of trust and confidence. Chestman, without challenging the holding in Reed, argues that Reed cannot sustain his Rule 10b-5 convictions because, unlike Reed senior and junior, Keith and Susan Loeb did not customarily repose confidential business information in one another. Neither party challenges the holding of Reed. And we decline to do so sua sponte. To remain consistent with our interpretation of a “similar relationship of trust and confidence,” however, we limit Reed to its essential holding: the repeated disclosure of business secrets between family members may substitute for a factual finding of dependence and influence and thereby sustain a finding of the functional equivalent of a fiduciary relationship. We note, in this regard, that Reed repeatedly emphasized that the father and son “frequently discussed business affairs.” Id. at 690; see also id. at 705, 709, 717-18.
We recognize, as Reed did, that equity has occasionally established a less rigorous threshold for a fiduciary-like relationship in order to right civil wrongs arising from non-compliance with the statute of frauds, statute of wills and parol evidence rule. See Bogert, supra § 482, at 286 (explaining that equity’s flexible treatment of confidential relationships has been particularly useful in evading the harsh consequences of the statute of frauds). Commenting on the boundless nature of relations of trust and confidence, one scholar observed:
Equity has never bound’ itself by any hard and fast definition of the phrase “confidential relation” and has not listed all the necessary elements of such a relation, but has reserved discretion to apply the doctrine whenever it believes that a suitable occasion has arisen.
Reed, 601 F.Supp. at 712 n. 38 (quoting G.G. Bogert, The Law of Trusts and Trustees § 482, at 284-86 (Rev. 2d ed. 1978)). *570Useful as such an elastic and expedient definition of confidential relations, i.e., relations of trust and confidence, may be in the civil context, it has no place in the criminal law. A “suitable occasion” test for determining the presence of criminal fraud would offend not only the rule of lenity but due process as well. See Chiarella, 445 U.S. at 235 n. 20, 100 S.Ct. at 1118 n. 20 (“a judicial holding that certain undefined activities ‘generally are prohibited’ by § 10(b) would raise questions whether either criminal or civil defendants would be given fair notice that they have engaged in illegal activity”). See also Dirks, 463 U.S. at 658 n. 17, 103 S.Ct. at 3263 n. 17 (In rejecting an SEC variation on the parity of information theory, the Court wrote: “[TJhis rule is inherently imprecise, and imprecision prevents parties from ordering their actions in accord with legal requirements.”). More than a perfunctory nod at the rule of lenity, then, is required. We will not apply outer permutations of chancery relief in addressing what is frequently the core inquiry in a Rule 10b-5 criminal conviction— whether a fiduciary duty has been breached.
4. Application of the Law of Fiduciary Duties
The alleged misappropriator in this case was Keith Loeb. According to the government’s theory of prosecution, Loeb breached a fiduciary duty to his wife Susan and the Waldbaum family when he disclosed to Robert Chestman information concerning a pending tender offer for Waldbaum stock. Chestman was convicted as an aider and abettor of the misappropriation and as a tippee of the misappropriated information. Convictions under both theories, the government concedes, required the government to establish two critical elements — Loeb breached a fiduciary duty to Susan Loeb or to the Waldbaum family and Chestman knew that Loeb had done so.
Chestman challenges the sufficiency of the evidence to establish each of these elements of the convictions. Although such a challenge carries a “heavy burden,” United States v. Chang An-Lo, 851 F.2d 547, 553 (2d Cir.), cert. denied, 488 U.S. 966, 109 S.Ct. 493, 102 L.Ed.2d 530 (1988), that burden was carried here.
We have little trouble finding the evidence insufficient to establish a fiduciary relationship or its functional equivalent between Keith Loeb and the Waldbaum family. The government presented only two pieces of evidence on this point. The first was that Keith was an extended member of the Waldbaum family, specifically the family patriarch’s (Ira Waldbaum’s) “nephew-in-law.” The second piece of evidence concerned Ira’s discussions of the business with family members. “My children,” Ira Waldbaum testified, “have always been involved with me and my family and they know we never speak about business outside of the family.” His earlier testimony indicates that the “family” to which he referred were his “three children who were involved in the business.”
Lending this evidence the reasonable inferences to which it is entitled, United States v. Zabare, 871 F.2d 282, 286 (2d Cir.), cert. denied, 493 U.S. 856, 110 S.Ct. 161, 107 L.Ed.2d 119 (1989), it falls short of establishing the relationship necessary for fiduciary obligations. Kinship alone does not create the necessary relationship. The government proffered nothing more to establish a fiduciary-like association. It did not show that Keith Loeb had been brought into the family’s inner circle, whose members, it appears, discussed confidential business information either because they were kin or because they worked together with Ira Waldbaum. Keith was not an employee of Waldbaum and there was no showing that he participated in confidential communications regarding the business. The critical information was gratuitously communicated to him. The disclosure did not serve the interests of Ira Waldbaum, his children or the Waldbaum company. Nor was there any evidence that the alleged relationship was characterized by influence or reliance of any sort. Measured against the principles of fiduciary relations, the evidence does not support a finding that Keith Loeb and the *571Waldbaum family shared either a fiduciary relation or its functional equivalent.
The government’s theory that Keith breached a fiduciary duty of confidentiality to Susan suffers from similar defects. The evidence showed: Keith and Susan were married; Susan admonished Keith not to disclose that Waldbaum was the target of a tender offer; and the two had shared and maintained confidences in the past.
Keith’s status as Susan’s husband could not itself establish fiduciary status. Nor, absent a pre-existing fiduciary relation or an express agreement of confidentiality, could the coda — “Don’t tell.” That leaves the unremarkable testimony that Keith and Susan had shared and maintained generic confidences before. The jury was not told the nature of these past disclosures and therefore it could not reasonably find a relationship that inspired fiduciary, rather than normal marital, obligations.
In the absence of evidence of an explicit acceptance by Keith of a duty of confidentiality, the context of the disclosure takes on special import. While acceptance may be implied, it must be implied from a pre-existing fiduciary-like relationship between the parties. Here the government presented the jury with insufficient evidence from which to draw a rational inference of implied acceptance. Susan’s disclosure of the information to Keith served no purpose, business or otherwise. The disclosure also was unprompted. Keith did not induce her to convey the information through misrepresentation or subterfuge. Superiority and reliance, moreover, did not mark this relationship either before or after the disclosure of the confidential information. Nor did Susan’s dependence on Keith to act in her interests for some purpose inspire the disclosure. The government failed even to establish a pattern of sharing business confidences between the couple. The government, therefore, failed to offer sufficient evidence to establish the functional equivalent of a fiduciary relation.
In sum, because Keith owed neither Susan nor the Waldbaum family a fiduciary duty or its functional equivalent, he did not defraud them by disclosing news of the pending tender offer to Chestman. Absent a predicate act of fraud by Keith Loeb, the alleged misappropriator, Chestman could not be derivatively liable as Loeb’s tippee or as an aider and abettor. Therefore, Chestman’s Rule 10b-5 convictions must be reversed.
C. Mail Fraud
The fortunes of Chestman’s mail fraud convictions are tied closely to his securities fraud convictions. “Chest-man’s mail fraud convictions,” the government concedes, “were based on the same theory as his Rule 10b-5 convictions.” The same fraudulent scheme that underlay the Rule 10b-5 convictions also was the basis for the mail fraud convictions. A scheme to misappropriate material nonpublic information in breach of a fiduciary duty of confidentiality may indeed constitute a fraudulent scheme sufficient to sustain a mail fraud conviction. See Carpenter, 484 U.S. at 27-28, 108 S.Ct. at 321-22; Newman, 664 F.2d at 19. However, whatever ethical obligation Loeb may have owed the Waldbaum family or Susan Loeb, it was too ethereal to be protected by either the securities or mail fraud statutes.
CONCLUSION
Accordingly, we affirm the Rule 14e-3(a) convictions and reverse the Rule 10b-5 and mail fraud convictions. The reversal of these convictions does not warrant reconsideration of the sentence since the sentences on the Rule 10b-5 and mail fraud convictions are concurrent with the sentences in the Rule 14(e)-3(a) counts. The panel’s reversal of the perjury conviction remains intact.

. The indictment and judgment of conviction charge Chestman with violating Rule 14e-3(a) as well as Rule 14e-3(d). The record provides no other indications, however, that Rule 14e-3(d) was involved in this case. In fact, in the government’s Memorandum of Law in Opposition to Defendant's Pretrial Motions, the government states:
The rule [Rule 14e-3] also contains limited exceptions pertaining to multi-service financial institutions and brokerage transactions and establishes an "anti-tipping" rule with respect to material, nonpublic information concerning a tender offer. Rule 14e-3(b), (c), and (d). These provisions are not at issue here. The indictment invokes only subsection (a) of Rule 14e-3.
Thus, like the district court, 704 F.Supp. 451, 456 n. 4 (S.D.N.Y.1989), and the panel, 903 F.2d 75, 85 (2d Cir.1990), we assume that Chestman was convicted only under subsection (a) of Rule 14e-3.

. The insider's fiduciary duties, it should be noted, run to a buyer (a shareholder-to-be) and to a seller (a pre-existing shareholder) of securities, even though the buyer technically does not have a fiduciary relationship with the insider prior to the trade. As the Court explained in Chiarella:
The transaction in Cady, Roberts involved sale of stock to persons who previously may not have been shareholders in the corporation. The Commission embraced the reasoning of Judge Learned Hand that "the director or officer assumed a fiduciary relation to the buyer by the very sale; for it would be a sorry distinction to allow him to use the advantage of his position to induce the buyer into the position of a beneficiary although he was forbidden to do so once the buyer had become one.”
445 U.S. at 227 n. 8, 100 S.Ct. at 1114 n. 8 (quoting Cady, Roberts & Co., 40 S.E.C. 907, 914 n. 23 (1961) (quoting Gratz v. Claughton, 187 *566F.2d 46, 49 (2d Cir.), cert. denied, 341 U.S. 920, 71 S.Ct. 741, 95 L.Ed. 1353 (1951))) (internal citation omitted).

. In Carpenter v. United States, 484 U.S. 19, 24, 108 S.Ct. 316, 320, 98 L.Ed.2d 275 (1987), an "evenly divided” Court affirmed the securities fraud convictions brought pursuant to the misappropriation theory. An affirmance by an evenly divided court is "not entitled to prece-dential weight.” See Neil v. Biggers, 409 U.S. 188, 192, 93 S.Ct. 375, 379, 34 L.Ed.2d 401 (1972). Thus, Supreme Court support for the misappropriation theory is still unclear.