Please answer case brief in this format!

I. JUDGMENT

II LEGAL PRINCIPLE A ISSUE (Question of Law) B HOLDING (Answer of Law)

III REASONING A GENERAL ANALYSIS B APPLIED ANALYSIS

IV JUDGMENT

SEC v. Dorozhko 574 F.3d 42 (2d Cir. 2009)

The court was asked to consider whether, in a civil lawsuit brought by the SEC under Section 10(b) of the Exchange Act, computer hacking may be "deceptive" where the hacker did not breach a fiduciary duty in fraudulently obtaining material, nonpublic information used in connection with the purchase or sale of securities.

In October 2007, Oleksandr Dorozhko, a Ukrainian national, opened an online trading account with Interactive Brokers. At about the same time, IMS Health announced it would release its third-quarter earnings during an analyst conference call after trading closes on October 17. IMS had hired Thomson Financial to provide investor relations and web-hosting services, which included managing the online release of IMS's earnings reports.

Beginning the morning of the analyst call and continuing several times during the early afternoon, an anonymous computer hacker attempted to gain access to the IMS earnings report by hacking into a secure server at Thomson. That afternoon, minutes after Thomson actually received the IMS data, that hacker successfully downloaded the IMS data from Thomson's secure server. A few minutes later, Dorozhkowho had not previously used his Interactive Brokers account to tradepurchased $41,670.90 worth of IMS "put" options that would expire on October 25 and 30. These purchases represented approximately 90% of all purchases of "put" options for IMS stock for the six weeks prior to October 17. In purchasing these options, which the SEC describes as "extremely risky," Dorozhko was betting that IMS's stock price would decline precipitously.

Just slightly ahead of the analyst call, IMS announced that its earnings per share were 28% below "Street" expectations. When the market opened the next morning, IMS's stock price sank approximately 28% almost immediately. Within six minutes of the market opening, Dorozhko had sold all of his IMS options, realizing a net profit of $286,456.59 overnight.

Interactive Brokers noticed the irregular trading activity and referred the matter to the SEC, which now alleges that Dorozhko was the hacker and sought a temporary retraining order against him to freeze the proceeds of his trades. The district court ruled that computer hacking was not "deceptive" within the meaning of Section 10(b) as defined by the Supreme Court. According to the district court, a breach of a fiduciary duty of disclosure is a required element of any deceptive device under Section 10b, and that because defendant was a corporate outsider with no special relationship to IMS or Thomson, he owed no fiduciary duty to either. Although computer hacking might be fraudulent and might violate a number of federal and state criminal statutes, the district court concluded that this behavior did not violate Section 10(b) without an accompanying breach of a fiduciary duty. This appeal followed.

Cabranes, Judge

The District Court determined that the Supreme Court has interpreted the "deceptive" element of Section 10(b) to require a breach of a fiduciary duty. The District Court reached this conclusion by relying principally on three Supreme Court opinions: Chiarella v. United States, United States v. O'Hagan, and SEC v. Zandford. We consider each of these cases in turn.

In Chiarella, the defendant was employed by a financial printer and used information passing through his office to trade securities offered by acquiring and target companies. In a criminal prosecution, the government alleged that the defendant committed fraud by not disclosing to the market that he was trading on the basis of material, nonpublic information. The Supreme Court held that defendant's "silence," or nondisclosure, was not fraud because he was under no obligation to disclose his knowledge of inside information. "When an allegation of fraud is based upon nondisclosure, there can be no fraud absent a duty to speak. We hold that a duty to disclose under 10(b) does not arise from the mere possession of nonpublic market information." Justice Blackmun, joined by Justice Marshall, dissented. In their view, stealing information from an employer was fraudulent within the meaning of Section 10(b) because the statute was designed as a "catchall" provision to protect investors from unknown risks.

According to Justice Blackmun, the majority had "confine[d]" the meaning of fraud "by imposition of a requirement of a 'special relationship' akin to fiduciary duty before the statute gives rise to a duty to disclose or to abstain from trading upon material, nonpublic information."

In O'Hagan, the defendant was an attorney who traded in securities based on material, nonpublic information regarding his firm's clients. As in Chiarella, the government alleged that the defendant had committed fraud through "silence" because the defendant had a duty to disclose to the source of the information (his client) that he would trade on the information. The Supreme Court agreed, noting that "[d]eception through nondisclosure is central to the theory of liability for which the Government seeks recognition." "[I]f the fiduciary discloses to the source that he plans to trade on the nonpublic information, there is no 'deceptive device' and thus no 10(b) violationalthough the fiduciary-turned-trader may remain liable under state law for breach of a duty of loyalty."

In Zandford, the defendant was a securities broker who traded under a client's account and transferred the proceeds to his own account. The Fourth Circuit held that the defendant's fraud was not "in connection with" the purchase or sale of a security because it was mere theft that happened to involve securities, rather than true securities fraud. The Supreme Court reversed in a unanimous opinion, observing that Section 10(b) "should be construed not technically and restrictively, but flexibly to effectuate its remedial purposes." Although the Court warned that not "every common-law fraud that happens to involve securities [is] a violation of 10(b)," the defendant's scheme was a single plan to deceive, rather than a series of independent frauds, and was therefore "in connection with" the purchase or sale of a security. In a final footnote, the Court offered the following observation: "[I]f the broker told his client he was stealing the client's assets, that breach of fiduciary duty might be in connection with a sale of securities, but it would not involve a deceptive device or fraud." In the instant case, the District Court interpreted the Zandford footnote as an "explicit[ ] acknowledg[ment] that Zandford would not be liable under 10(b) if he had disclosed to Wood that he was planning to steal his money."

In our view, none of the Supreme Court opinions relied upon by the District Courtmuch less the sum of all three opinionsestablishes a fiduciary-duty requirement as an element of every violation of Section 10(b). In Chiarella, O'Hagan, and Zandford, the theory of fraud was silence or nondisclosure, not an affirmative misrepresentation. The Supreme Court held that remaining silent was actionable only where there was a duty to speak, arising from a fiduciary relationship. In Chiarella, the Supreme Court held that there was no deception in an employee's silence because he did not have duty to speak. In O'Hagan, an attorney who traded on client secrets had a fiduciary duty to inform his firm that he was trading on the basis of the confidential information. Even in Zandford, which dealt principally with the statutory requirement that a deceptive device be used "in connection with" the purchase or sale of a security, the defendant's fraud consisted of not telling his brokerage clientto whom he owed a fiduciary dutythat he was stealing assets from the account.

[These cases] all stand for the proposition that nondisclosure in breach of a fiduciary duty "satisfies 10(b)'s requirement . . . [of] a 'deceptive device or contrivance.'" However, what is sufficient is not always what is necessary, and none of the Supreme Court opinions considered by the District Court require a fiduciary relationship as an element of an actionable securities claim under Section 10(b). While Chiarella, O'Hagan, and Zandford all dealt with fraud qua silence, an affirmative misrepresentation is a distinct species of fraud. Even if a person does not have a fiduciary duty to "disclose or abstain from trading," there is nonetheless an affirmative obligation in commercial dealings not to mislead. See, e.g., Basic Inc. v. Levinson, 485 U.S. 224 (1988).

In this case, the SEC has not alleged that defendant fraudulently remained silent in the face of a "duty to disclose or abstain" from trading. Rather, the SEC argues that defendant affirmatively misrepresented himself in order to gain access to material, nonpublic information, which he then used to trade. We are aware of no precedent of the Supreme Court or our Court that forecloses or prohibits the SEC's straightforward theory of fraud. Absent a controlling precedent that "deceptive" has a more limited meaning than its ordinary meaning, we see no reason to complicate the enforcement of Section 10(b) by divining new requirements. In reaching this conclusion, we are mindful of the Supreme Court's oft-repeated instruction that Section 10(b) "should be construed not technically and restrictively, but flexibly to effectuate its remedial purposes." Accordingly, we adopt the SEC's proposed interpretation of Chiarella and its progeny: "misrepresentations are fraudulent, but . . . silence is fraudulent only if there is a duty to disclose."