Securities And Exchange Commission v. Materi

Facts

D was employed by a firm specializing in the printing of financial documents, including many used by its corporate clients in connection with proposed tender offers. Information regarding the identity of a target is extremely sensitive and carefully guarded. It is customary to omit information that might tend to identify a target company until the last possible moment. Code names and blanks are left to be filled in on the eve of publication, and occasionally misinformation is even included in early drafts. D read clients' drafts aloud to a proofreader, who in turn checked to make certain that page proofs conformed to the copy received from the client. D was able to divine the identities of at least four tender offer targets in the period between December 1980 and September 1982. Within hours of each discovery, he purchased stock, and within days -- after the offer had been made public -- he sold his holdings at substantial gains. D's employer had a policy explicitly forbidding its employees from trading on information they might come across in the course of their work. Written statements of this prohibition were posted conspicuously in its plant, and copies were distributed to all employees. The Securities and Exchange Commission (P) filed an enforcement action, charging that he had violated and was about to violate Sections 10(b) and 14(e) and Rules 10b-5 and 14e-3. The court found that D had breached a fiduciary duty to his employer and its clients to maintain their confidences. It concluded that D had actual knowledge of this duty, and thus had acted with scienter. It held that D had violated Sections 10(b) and 14(e), and Rules 10b-5 and 14e-3. It issued a permanent injunction, restraining him from continuing violations. D was ordered to disgorge his illegally obtained profits of $99,862.50. D appealed. 

Issues

Rule of Law

Holding and Decision

Legal Analysis

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