To prevail on an insider-trading claim pursuant to Section 10(b) of the Exchange Act and Rule 10b-5 thereunder based on the misappropriation theory, the SEC must prove that the defendant (1) misappropriated material, nonpublic information; (2) had a duty of trust or confidence; (3) breached that duty; (4) purchased or sold securities, or tipped another who purchased or sold securities, on the basis of that information; and (5) knew or should have known that he or she was trading or tipping others on inappropriately obtained information. Dirks v. SEC, 463 U.S. 646, 660 (1983). The SEC has identified three nonexhaustive circumstances that create a duty of trust or confidence; they are (1) when a person agrees to maintain information in confidence; (2) when there is a history, pattern, or practice of sharing confidences and the recipient knows or reasonably should know that the person communicating the information expects the recipient to maintain its confidentiality; and (3) when a person receives material, nonpublic information from his or her spouse, parent, child, or sibling. See 17 C.F.R. § 240.10b5-2(b).

The existence of “a duty of trust or confidence” and the SEC’s attempt to expand that duty beyond the traditional fiduciary relationship have been the subject of many a motion to dismiss. Courts, however, have routinely ruled that a duty of trust or confidence is not limited to traditional fiduciary relationships. For example, in United States v. Corbin, 729 F. Supp. 2d 607 (S.D.N.Y. 2010), the court acknowledged Rule 10b5-2’s presumption of a relationship of trust and confidence between spouses and held that the SEC adequately alleged that a husband and wife had a history of sharing business confidences that the wife obtained about impending acquisitions while working for a communications firm, and that the pair had a “domestic confidentiality policy” of sorts whereby the husband understood he could not share that confidential information. In United States v. McGee, 892 F. Supp. 2d 726 (E.D. Pa. 2012), the court concluded that the complaint adequately alleged a relationship of trust and confidence where the source of the information and the recipient had become friends through Alcoholics Anonymous and also had an agreement of confidentiality through their involvement with that organization. In SEC v. Conradt, 947 F. Supp. 2d 406 (S.D.N.Y. 2013), the Court concluded that the SEC adequately pleaded a relationship of trust and confidence by alleging that two friends over the course of eight months shared confidences regarding family illnesses, personal legal troubles, and work communications describing sensitive client holdings.

But two recent jury verdicts provide some hope to defendants. In SEC v. Jacobs, Case No. 13-cv-1289 (N.D. Ohio), the SEC alleged that Andrew and Leslie Jacobs violated Section 14 of the Exchange Act and Rule 14e-3, which pertains to insider trading specifically in the context of tender offers, and Section 10(b) of the Exchange Act and Rule 10b(5), which pertains to insider trading generally, when Leslie traded on information provided to Andrew by his close friend and brother-in-law, Blair Ramey. According to the complaint, although Ramey did not tell Andrew about the tender offer specifically, he was certain to have understood Ramey’s company was going to be acquired given the nature of the conversation. Ramey requested that Andrew keep their conversation confidential, and Andrew agreed to do so.

Although the jury found Andrew and Leslie liable under Section 14 of the Exchange Act and Rule 14e-3, it did not find them liable under Section 10(b) of the Exchange Act and Rule 10b(5). The distinction between these two claims is crucial—a finding of liability under Section 14 of the Exchange Act and Rule 14e-3 does not require the existence of a duty of trust or confidence while a finding under Section 10(b) of the Exchange Act and Rule 10(b)(5) does.

And, of course, the jury found entrepreneur Mark Cuban not liable for insider trading, even though the Fifth Circuit had concluded that the SEC adequately pleaded Cuban had a relationship of confidence because he agreed to keep confidential material, nonpublic information and also promised not to trade on the information, SEC v. Cuban, 620 F.3d 551 (5th Cir. 2010).

Notwithstanding the expansive interpretation given to the duty of trust or confidence element by the SEC and the courts, the Jacobs and Cuban verdicts serve as a reminder that the jury may not always accept the SEC’s formulation of liability, even when that formulation has been the basis for numerous successful oppositions to motions to dismiss.