United States v. Kim

184 F. Supp. 2d 1006 (2002)

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United States v. Kim

United States District Court for the Northern District of California
184 F. Supp. 2d 1006 (2002)

Facts

Keith Joon Kim (defendant) was a member of a chapter of the Young Presidents Organization (YPO), an organization of company presidents under age 50. Strict confidentiality was a key principle of the YPO. In March 1999, a chapter member, who was the chief executive officer of publicly traded Meridian Data, Inc. (Meridian), advised his fellow members that he could not attend a YPO retreat because Meridian was involved in merger discussions. Kim quickly bought more than 187,000 Meridian shares. The next week, Meridian publicly announced the merger, causing its stock price to soar and generating significant profits for Kim. Kim was indicted for securities fraud and wire fraud. The indictment alleged Kim committed misappropriation-based insider trading because he violated a fiduciary-like confidentiality obligation to the YPO. In August 2000, the Securities and Exchange Commission (SEC) promulgated Rule 10b5-2, which provided that a recipient of confidential information has a duty to maintain confidentiality for misappropriation purposes if the party (1) agreed to maintain information in confidence or (2) had a history, pattern, or practice of sharing confidences with the information’s source. In enacting the new rule, the SEC explained it embraced relationships that previously did not implicate misappropriation. Kim moved to dismiss the securities- and wire-fraud counts. Kim argued that Rule 10b5-2 did not apply to him because it imposed restrictions not in effect when he made the relevant trades and that the YPO’s rules otherwise imposed no legal duty to keep information confidential because his relationship with the YPO was not functionally equivalent to a fiduciary relationship. The prosecution (plaintiff) responded that Rule 10b5-2 merely clarified the scope of existing law (rather than imposing more stringent liability) and thus did apply to Kim and that the relationship between Kim and the YPO was fiduciary-like.

Rule of Law

Issue

Holding and Reasoning (Breyer, J.)

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