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Judge Juxtaposes California And Delaware Insider Trading Law

Yesterday, I wrote about Judge Claudia Wilken's recent ruling that the internal affairs doctrine does not supplant California's insider trading statute, Corp. Code § 25402. In re McKesson Corp. Derivative Litig., 2018 U.S. Dist. LEXIS 81049.  While the plaintiffs prevailed on that point, Judge Wilken nonetheless dismissed the plaintiffs' insider trading claims under both California and Delaware law, finding that their generalized allegations failed to state with particularity a plausible theory supporting their claims.

In particular, Judge Wilken found that the plaintiffs failed to satisfy Rule 9(b) of the Federal Rules of Civil Procedure because insider trading is a "fraudulent practice".  She also noted an important difference between California and Delaware law with respect to insider trading:

"Both Delaware and California law require that the trader have material, nonpublic information. In Delaware, the trader must be motivated by the substance of that information, [In re]Oracle, 867 A.2d [904] at 934 [Del. Ch. 2004], whereas in California the trader must simply make a purchase or sale with the knowledge that the information would significantly affect the market price of the security, Cal. Corp. Code § 25402."

We may hear more about the plaintiffs' insider trading claims as Judge Wilken dismissed those claims with leave to amend.

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About this Author

Keith Paul Bishop, Corporate Transactions Lawyer, finance securities attorney, Allen Matkins Law Firm

Keith Paul Bishop is a partner in Allen Matkins' Corporate and Securities practice group, and works out of the Orange County office. He represents clients in a wide range of corporate transactions, including public and private securities offerings of debt and equity, mergers and acquisitions, proxy contests and tender offers, corporate governance matters and federal and state securities laws (including the Sarbanes-Oxley Act of 2002 and the Dodd-Frank Act), investment adviser, financial services regulation, and California administrative law. He regularly advises clients...