Under the classic insider trading theory, who owes fiduciary duties?

• A. Corporate insiders owe fiduciary duties to shareholders, and trading on material nonpublic information breaches those duties.
• B. Misappropriation theory imposes duties on all traders regardless.
• C. There is no difference between the theories.
• D. Only misappropriation theory applies to corporate insiders.

Answer: (A)

In insider trading under the classic theory, fiduciary duties flow from the insider’s position in the corporation. Corporate insiders—those with access to material nonpublic information because of their role—owe loyalty and confidentiality to the shareholders. That means they must not use that information for their own benefit or for others’ benefit at the shareholders’ expense. Trading on that nonpublic information breaches those duties, which is the essence of insider trading in the classic view.

The misappropriation theory is a separate framework: it says a person who misuses information owes duties to the source of that information, not necessarily to the shareholders. So, while it’s a valid theory, it describes a different duty basis than the classic theory. That’s why the statement that corporate insiders owe fiduciary duties to shareholders under the classic theory is the best answer. The other options either mix the theories, deny differences between them, or wrongly assign duties only to the misappropriation theory.