At the very end of 2013, the Delaware Court of Chancery issued a major insider-trading decision that has substantial implications for company officials selling their company stock. The decision in Silverberg v. Gold, Del. Ch. C.A. 7647-VCL (December 31, 2013), upholds using circumstantial evidence to establish that insiders were motivated by material nonpublic information to sell company stock. Silverberg‘s significance lies in the extent to which it draws inferences of wrongful conduct from some limited evidence. Thus, Silverberg may permit more insider-trading complaints to survive a motion to dismiss.
In Delaware, a claim for insider trading is called a Brophy claim. Brophy held that it is a breach of a director’s fiduciary duty to use material nonpublic information to make trades in the director’s company’s stock. A director guilty of a Brophy violation may be required to disgorge his or her profits from the trades.
