## Facts

- Keith Joon Kim, a CEO and member of the Young Presidents’ Organization (YPO), participated in a small YPO “forum” whose written rules required “absolute confidentiality,” reinforced by a signed confidentiality commitment.
- In March 1999, a fellow forum member (a CEO of a public company) disclosed in the forum that his company was engaged in merger negotiations.
- Shortly thereafter, Kim bought a large block of the company’s stock; after the merger announcement, the stock price rose and Kim realized substantial profits.
- The United States charged Kim with securities fraud under § 10(b)/Rule 10b-5 and wire fraud, proceeding under a misappropriation theory that Kim traded on confidential information in breach of a “fiduciary-like” duty to the YPO forum and its members.
- While the case was pending, the SEC adopted Rule 10b5-2 (2000), defining certain relationships as creating a “duty of trust or confidence,” including agreements to keep information confidential.

## Issues

1. Whether SEC Rule 10b5-2 could be applied to Kim’s 1999 trading on the theory that it merely clarified existing law, or whether applying it would impermissibly expand criminal liability retroactively.
2. Whether, under pre-Rule 10b5-2 misappropriation doctrine, YPO forum confidentiality rules and commitments created a fiduciary or fiduciary-like duty whose breach could support criminal insider-trading liability.
3. Whether wire-fraud counts dependent on the alleged securities-fraud misappropriation theory could stand if the securities-fraud theory failed.

## Decision

- The court declined to apply Rule 10b5-2 to Kim’s pre-adoption conduct in a criminal prosecution.
- The court reaffirmed that the YPO forum relationship, as alleged, imposed strong ethical and contractual confidentiality obligations but did not create the fiduciary-like duty required for criminal misappropriation liability under § 10(b)/Rule 10b-5.
- Counts premised on the misappropriation-based insider-trading theory, including dependent wire-fraud charges, were dismissed.

## Legal Principles

- Criminal misappropriation-based insider trading under § 10(b)/Rule 10b-5 requires a fiduciary or fiduciary-like relationship of trust and confidence; moral obligations or private club norms alone are insufficient.
- A confidentiality agreement, without an agency-like entrustment or comparable fiduciary structure, does not automatically create the kind of duty whose breach constitutes a “deceptive device” under § 10(b).
- An agency rule that substantively expands duties relevant to misappropriation liability cannot be applied retroactively to impose criminal liability for conduct occurring before the rule’s adoption; due process and the rule of lenity constrain such use.
- Organizational sanctions (e.g., expulsion or reputational consequences) may address breaches of private confidentiality commitments even when federal criminal securities-fraud law does not.

## Conclusion

The court held that SEC Rule 10b5-2 could not retroactively supply a duty for pre-Rule trading and that a private club’s confidentiality commitments did not create the fiduciary-like duty required for criminal misappropriation-based insider trading, requiring dismissal of the misappropriation-dependent charges.


United States v. Kim, 184 F. Supp. 2d 1006 (N.D. Cal. 2002)