## Facts

- David Yun, a senior executive at a public company, learned confidential, material nonpublic information that the company would announce worse-than-expected earnings results and a likely stock price decline.
- Executives were instructed to keep the information confidential and not trade before the public announcement.
- David disclosed the confidential information to his wife, Donna Yun, and asked her to keep it confidential; she agreed.
- Donna worked as a real estate broker with Jerry Burch, a friend and co-worker with whom she shared commissions.
- Burch overheard Donna discussing the expected stock price decline and later obtained additional information from her the same day.
- The next day, Burch bought put options in the company before the negative earnings news became public.
- After the public announcement, Burch realized large profits (approximately a 1,300% return; over $250,000).
- The SEC investigated promptly and filed a civil enforcement action alleging violations of Exchange Act § 10(b) and Rule 10b-5 under the misappropriation theory, asserting Donna tipped Burch and Burch traded on the tip.
- A jury found liability on a special verdict form; the district court entered disgorgement (with prejudgment interest) and imposed civil penalties.
- Donna and Burch appealed, challenging, among other things, the legal correctness of the jury instructions defining misappropriation-theory liability.

## Issues

1. Whether the evidence permitted a finding that Donna Yun owed David Yun a duty of trust and confidence (fidelity and confidentiality) as the source of the information for misappropriation-theory liability.
2. Whether misappropriation-based tipper liability requires proof that the tipper disclosed the information for a personal benefit, including a non-monetary benefit.
3. Whether the jury instructions erroneously stated the elements of misappropriation-theory liability—particularly breach and personal benefit—in a way that prejudiced the defendants.

## Decision

- The Eleventh Circuit vacated the judgment and remanded for further proceedings.
- The court held the jury instructions on the misappropriation theory were erroneous and prejudicial.
- The court recognized that a spousal relationship does not automatically establish the required duty, but a duty of trust and confidence may be found based on an arrangement and promise of confidentiality regarding the information at issue.
- The court concluded that the instructions risked allowing liability without requiring the jury to find that Donna disclosed the information for a personal benefit and without properly connecting tippee liability to knowledge of the breach.

## Legal Principles

- Under the misappropriation theory, § 10(b) and Rule 10b-5 are violated when a person misappropriates confidential information for securities trading purposes in breach of a duty owed to the information’s source.
- A duty of trust and confidence between spouses can support misappropriation liability when supported by specific evidence (e.g., an explicit request for confidentiality and an agreement to keep the information confidential), not merely by marital status.
- In a tipping case proceeding on misappropriation principles, tipper liability requires disclosure in breach of the duty to the source for a personal benefit; the benefit need not be financial and can be relational (including a gift of information).
- Tippee liability requires trading on the information with the requisite connection to the tipper’s breach, including awareness (or legally sufficient notice) that the information was disclosed in breach of duty for the relevant benefit.
- Jury instructions that omit or misstate these elements, or that permit liability without the required findings on breach and personal benefit, constitute reversible error when prejudicial.

## Conclusion

The Eleventh Circuit set aside the SEC’s verdict because the jury charge did not properly define misappropriation-theory tipping liability, including the need for a breach of a duty to the source for a personal benefit and the related requirements for tippee liability, and remanded for proceedings under correct legal instructions.


Securities & Exchange Commission v. Yun, 327 F.3d 1263 (11th Cir. 2003)