In an important recent insider trading case, U.S. v. Chestman, the Second Circuit Court of Appeals affirmed the "misappropriation theory" of insider trading liability in criminal fraud cases under Securities Exchange Act Rule 10b-5. It restricted application of the theory, however, by imposing on prosecutors the burden of proving that a defendant failed to disclose material nonpublic information prior to a securities transaction when the defendant was under a fiduciary or like duty of trust to make such disclosure. The original Chestman court had stated that a defendant does have a duty to disclose such information, or abstain from trading in the tender offer context under Securities Exchange Act Rule 14e3(a), without regard to the existence of a fiduciary or like duty of trust.

Also, Congress has recently enacted two important securities acts. The Insider Trading Securities Fraud and Enforcement Act of 1988 (ITSFEA) expands the responsibility of brokerage and investment advisory firms to prevent insider trading by imposing liability on "controlling persons" and by requiring the adoption of monitoring procedures. The Securities Enforcement Remedies and Penny Stock Enforcement Act of 1990 expands the Securities and Exchange Commission's authority to impose penalties and other remedies for insider trading and other securities laws violations.