## Facts

- Oleksandr Dorozhko, a Ukrainian national, opened a U.S. online brokerage account and deposited $42,500 in October 2007.
- IMS Health, Inc. scheduled release of third-quarter earnings on October 17, 2007 after the market close; Thomson Financial, Inc. hosted the secure system for the online release.
- On October 17, an unknown actor repeatedly attempted to access Thomson’s secure server and successfully downloaded IMS earnings data minutes after Thomson received it.
- About 35 minutes later, Dorozhko—who had not previously traded in the account—bought $41,670.90 of short-dated IMS put options, representing roughly 90% of put-option purchases in the prior six weeks.
- IMS announced earnings materially below expectations; the next trading day the stock fell about 28%.
- Dorozhko sold the options for approximately $287,346 in profit.
- The SEC alleged Dorozhko obtained material nonpublic earnings information through hacking and traded on it in violation of Exchange Act § 10(b) and Rule 10b-5.

## Issues

1. Whether computer hacking used to obtain material nonpublic information can constitute a “deceptive device” under Exchange Act § 10(b) and Rule 10b-5 absent any fiduciary or similar duty to the information source.
2. Whether the district court erred by treating a fiduciary-duty breach as a necessary element of “deception” for § 10(b) liability on the SEC’s theory.

## Decision

- The Second Circuit vacated the district court’s denial of preliminary injunctive relief and its dismissal of the SEC’s theory to the extent it rested on a categorical fiduciary-duty requirement.
- The court held that “deceptive” conduct under § 10(b) is not limited to fiduciary-duty breaches when the alleged fraud involves an affirmative misrepresentation.
- The court concluded that hacking accomplished through fraudulent means (e.g., use of false credentials or similar trickery) can qualify as a deceptive device used “in connection with” a securities trade.
- The court remanded for further proceedings, including whether the SEC could prove the alleged deceptive hacking and Dorozhko’s responsibility for it.
- The court expressly left open whether mere theft of information, without misrepresentation, would be “deceptive” under § 10(b).

## Legal Principles

- Section 10(b) and Rule 10b-5 reach conduct that is “deceptive” in the ordinary sense, including affirmative misrepresentations, without requiring a fiduciary or similar duty.
- Fiduciary-duty concepts are central to insider-trading theories premised on silence or nondisclosure, but they do not define the full scope of “deceptive device or contrivance” in § 10(b).
- Fraudulent acquisition of material nonpublic information via deceptive means may satisfy § 10(b)’s “in connection with” requirement when closely linked to securities trading.
- Courts may distinguish between deceptive acquisition methods (misrepresentation-based hacking) and nondeceptive theft; the latter question remains unresolved on these facts.

## Conclusion

The Second Circuit recognized that § 10(b) liability may extend to “outsider” trading based on hacked material nonpublic information when the hacking itself involves affirmative deception, and it remanded for factual determination and further proceedings under that legal standard.


S.E.C. v. Dorozhko, 574 F.3d 42 (2d Cir. 2009)