Misappropriation Theory

AAA

DEFINITION of 'Misappropriation Theory'

A perspective that defines the act of stealing confidential information from an employer and then trading securities based on the misappropriated insider knowledge. In the United States, a person guilty according to the misappropriation theory will likely be convicted of insider trading.

INVESTOPEDIA EXPLAINS 'Misappropriation Theory'

The misappropriation theory gained prominence in the Supreme Court's conviction of James H. O'Hagan. O'Hagan was an attorney who acted on insider information regarding a takeover bid for Pillsbury. The United States versus O'Hagan was a watershed case for the theory, defining its validity.

This take on insider trading expands the traditional view of what constitutes guilt. Instead of looking only at people who trade their own companies' shares based on stolen information, the theory extends to those who use the knowledge to profit in any corporation.

RELATED TERMS
  1. Fiduciary Abuse

    Describes a situation in which an individual who is legally appointed ...
  2. Takeover Bid

    A type of corporate action in which an acquiring company makes ...
  3. Insider

    A director or senior officer of a company, as well as any person ...
  4. Defalcation

    1. Combining two or more debts to create one total debt. Defalcation ...
  5. Insider Trading

    The buying or selling of a security by someone who has access ...
  6. Insider Information

    A non-public fact regarding the plans or condition of a publicly ...
RELATED FAQS
  1. What are some high-profile examples of wash trading schemes?

    In 2012, the Royal Bank of Canada (RBC) was accused of a complex wash trading scheme to profit from a Canadian tax provision, ... Read Full Answer >>
  2. What are examples of inherent risk?

    Inherent risk is the risk imposed by complex transactions that require significant estimation in assessing the impact on ... Read Full Answer >>
  3. What is the difference between wash trading and insider trading?

    Wash trading is an illegal trading activity that artificially pumps up trading volume in a stock without the stock ever changing ... Read Full Answer >>
  4. What impact did the Sarbanes-Oxley Act have on corporate governance in the United ...

    After a prolonged period of corporate scandals involving large public companies from 2000 to 2002, the Sarbanes-Oxley Act ... Read Full Answer >>
  5. How can I profit from monitoring open interest?

    Since markets experience asymmetric information between parties, monitor whether there is an imbalance between the open interest ... Read Full Answer >>
  6. If I write a blog post about stocks I own, is that considered insider trading?

    Writing a blog post about stocks you own is not considered insider trading. The only duty of the blogger is to disclose he ... Read Full Answer >>
Related Articles
  1. Markets

    What Investors Can Learn From Insider Trading

    Some insider trading is actually legal - and can be extremely telling for investors.
  2. Economics

    Defining Illegal Insider Trading

    The better you understand why insider trading can be criminal, the better you'll understand how the market works.
  3. Investing Basics

    IPO Lock-Ups Stop Insider Selling

    Ownership plays a key role when companies go public. Find out how.
  4. Options & Futures

    When Insiders Buy, Should Investors Join Them?

    Insider tracking can inform your investment strategy, but it requires research and a level head. Find out what to look for.
  5. Options & Futures

    Can Insiders Help You Make Better Trades?

    Find out why the trading activity of owners and executives can be a valuable trade-confirmation tool.
  6. Options & Futures

    Keeping An Eye On The Activities Of Insiders And Institutions

    These transactions reveal much about a stock. We go over what to consider and where to find it.
  7. Taxes

    Gay Weddings Mean Big Business

    The coming boom in same sex marriages represents a money-making opportunity for anyone in the wedding industry.
  8. Fundamental Analysis

    How Patent Trolls Hurt Competition

    Patent trolls are known to have a negative impact on the overall business ecosystem. Investopedia explores how.
  9. Economics

    4 Challenges Uber Will Face In The Next Years

    Uber is growing but also facing tough challenges both in America and abroad.
  10. Investing Basics

    Who Are Patent Trolls & How Do They Work?

    Patent trolls are in the business of patent litigation, enforcing their patent rights against alleged infringers through license fees and lawsuits.

You May Also Like

Hot Definitions
  1. Investopedia

    One of the best-known sources of financial information on the internet. Investopedia is a resource for investors, consumers ...
  2. Unfair Claims Practice

    The improper avoidance of a claim by an insurer or an attempt to reduce the size of the claim. By engaging in unfair claims ...
  3. Killer Bees

    An individual or firm that helps a company fend off a takeover attempt. A killer bee uses defensive strategies to keep an ...
  4. Sin Tax

    A state-sponsored tax that is added to products or services that are seen as vices, such as alcohol, tobacco and gambling. ...
  5. Grandfathered Activities

    Nonbank activities, some of which would normally not be permissible for bank holding companies and foreign banks in the United ...
  6. Touchline

    The highest price that a buyer of a particular security is willing to pay and the lowest price at which a seller is willing ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!