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Court Of Chancery Explains Scienter Requirement In Insider Trading Claim

Silverberg v. Gold, C.A. 7646-VCP (December 31, 2013)

Under Delaware law, a so-called Brophy claim seeks to recover the profits made by trading on insider information. Showing that material insider information was available is not too hard.  What is harder is showing the intent to use that information, the scienter requirement.  After all, an insider may trade for a variety of reasons, such as a favorable public announcement of good future prospects.  Here the Court explains, in the context of a motion to dismiss, how to interpret the circumstances surrounding insider trades to find that they were done with the intent to benefit from the insider information.  Among the key facts are the timing of the trades in reference to obtaining the information, the failure to disclose the insider information until after the trades are completed, and the size of the trades in comparison to any prior trading.

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