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United States v. O'Hagan | 521 U.S. 642 (1997)
Imagine that one of your corporate clients confidentially tells you that the price of stock in another company is about to go up. If you buy the stock before it jumps, you can earn a fortune. But according to the Supreme Court’s opinion in United States versus O’Hagan, you might also end up in jail.
James O’Hagan was a partner in the law firm of Dorsey & Whitney. The firm had been engaged by a company called Grand Metropolitan to help the company acquire another company called Pillsbury. Grand Metropolitan planned to announce a tender offer, in which it would buy from the public a large number of Pillsbury shares at a price higher than the price at which Pillsbury had been trading on the stock market.
Knowing that Grand Metropolitan’s announcement would cause the price of Pillsbury stock to go up, O’Hagan bought 5,000 shares in Pillsbury, along with call options giving him the right to buy another 250,000 shares. After Grand Metropolitan announced its tender offer, the price of Pillsbury stock shot up, and O’Hagan sold off his holdings for a profit of $4.3 million.
Federal prosecutors charged O’Hagan with securities fraud under Section 10(b), Rule 10b-5, and Rule 14e-3(a) of the Securities Exchange Act . O’Hagan was convicted by a jury on all counts, but a divided panel of the Eighth Circuit reversed.
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