Is the inside information alledgedly known by your client considered "MATERIAL"?

Mooney contends that there was insufficient evidence to prove that he used material nonpublic information in violation of the securities laws. Mooney argues that his case differs from the typical insider trading case. He claims that an inside trader ordinarily knows to a greater degree of certainty how the stock price will be affected by the release of nonpublic information. See, e.g., United States v. O'Hagan, 521 U.S. 642, 117 S.Ct. 2199, 138 L.Ed.2d 724 (1997) (defendant knew that price of stock would increase after hostile tender offer announced). He argues that it was not certain that the United stock price would increase because of the merger with Metra. The legal test is not whether the price would certainly rise, however, but whether the inside information used was material. See Basic, Inc. v. Levinson, 485 U.S. 224, 236, 108 S.Ct. 978, 99 L.Ed.2d 194 (1988). A fact is material in the securities fraud context if there is a substantial likelihood that a reasonable investor would consider it important in making an investment decision. Id. at 231-32, 108 S.Ct. 978.

There was more than enough evidence here for a reasonable jury to find that Mooney's inside information was material. He exercised employee stock options to purchase United stock on April 13 after negotiations with Metra had begun. As soon as he returned home from the May due diligence meetings, he began to purchase call options for United stock. The jury could infer that Mooney sought to capitalize on his nonpublic information and anticipated he could profit by purchasing call options that could later be sold at a higher price. Mooney also had access to information that the acquisition of Metra was likely to present new growth opportunities for United. Because of his participation in high level confidential meetings, Mooney knew that the due diligence review had not derailed negotiations and that United would only proceed with acquisitions that were expected to increase earnings. He also knew that United would grow considerably in size, programs, and projected revenue. All of this information would have been of interest to a reasonable investor, and the jury could have found a substantial likelihood that it would have been considered important in making investment decisions. U.S. v. Mooney, 401 F.3d 940, 944-45 C.A.8 (Minn.), 2005.

More on "Material"

A fact is deemed material if there is "a substantial likelihood that a reasonable shareholder would consider it important in deciding how to vote." TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449, 96 S.Ct. 2126, 48 L.Ed.2d 757 (1976). "[T]here must be a substantial likelihood that the disclosure of the omitted fact would have been viewed by the reasonable investor as having significantly altered the 'total mix' of information made available." Basic Inc. v. Levinson, 485 U.S. 224, 231-32, 108 S.Ct. 978, 99 L.Ed.2d 194 (1988) (expressly adopting the TSC Industries standard for Section 10(b) and Rule 10b-5 violations). The Supreme Court has made clear, however, that the "role of the materiality requirement is not to attribute to investors a child-like simplicity ••• but to filter out essentially useless information that a reasonable investor would not consider significant." Id. at 234, 108 S.Ct. 978 (internal quotation marks and citation omitted). Certain information may be so basic that any investor can be expected to understand its implications. See Levitin v. PaineWebber, Inc., 159 F.3d 698, 702 (2d Cir.1998) ("certain information is 'so basic that any investor could be expected to know it' ") (quoting Zerman v. Ball, 735 F.2d 15, 21 (2d Cir.1984)). S.E.C. v. Happ, 392 F.3d 12, *21 C.A.1 (Mass.), 2004.

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