## Facts

- J.C. Bradford, Jr., a managing partner of a Nashville brokerage firm, purchased 1,225 shares of Old Line Life Insurance Company stock in the over-the-counter market based on a tip from his father.
- After the stock rose, Bradford, Jr. sold the shares about three months later for a $13,000 profit.
- The SEC investigated; Bradford, Jr. entered a consent decree requiring disgorgement of the $13,000, an injunction against further § 10(b)/Rule 10b-5 violations, and a 20-working-day broker-dealer suspension.
- Other Old Line shareholders brought a private civil action under Rule 10b-5 seeking damages based on Bradford, Jr.’s insider trading.
- The plaintiffs did not sell stock to Bradford, Jr. or his associates, did not trade on the same day or in the same month as his purchase, and did not prove his trades affected the market price or their own trading decisions.
- The district court held defendants jointly and severally liable for $361,186.75.

## Issues

1. Whether a private Rule 10b-5 plaintiff may recover damages from an insider/tippee who traded on material nonpublic information in an impersonal market when the plaintiff did not trade with the defendant, traded at different times, and showed no market-price or decision-related impact.
2. Whether imposing damages on these facts would improperly expand the judicially implied private right of action under § 10(b) and Rule 10b-5.

## Decision

- The Sixth Circuit reversed the district court’s judgment imposing joint and several liability.
- The court held that the plaintiffs failed to establish the required causal connection between the insider trading and any legally cognizable injury to them.
- The court characterized the district court’s approach as producing disproportionate (“Draconian”) liability untethered to actual causation or market impact.
- The court treated the requested remedy as an unwarranted extension of the implied private cause of action under Rule 10b-5 in an open-market context.

## Legal Principles

- A private Rule 10b-5 claim requires proof of causation linking the defendant’s misconduct to the plaintiff’s injury; contemporaneous participation in the same market, without more, is insufficient.
- An insider’s (or tippee’s) duty to disclose material nonpublic information or abstain from trading does not, by itself, create compensable private claims for all other market participants absent proof of injury and causation.
- Courts should not extend the implied private right of action under § 10(b)/Rule 10b-5 to impose broad, retrospective profit redistribution where plaintiffs neither traded with the defendant nor proved market-price effects.
- Public enforcement measures (e.g., disgorgement and injunctions) do not substitute for, and do not eliminate, private remedies, but they do not justify private damages in the absence of the elements required for compensatory relief.

## Conclusion

The Sixth Circuit rejected a broad damages theory for open-market insider trading and reversed the award because the plaintiffs could not show that the defendant’s trades caused their losses or otherwise produced a compensable injury under Rule 10b-5.


Fridrich v. Bradford, 542 F.2d 307 (6th Cir. 1976)