Freeman v. Decio - 584 F.2d 186 (7th Cir. 1978)

Rule:

An insider is not obligated to confer upon outside investors the benefit of his superior financial or other expert analysis by disclosing his educated guesses or predictions. The only regulatory objective is that access to material information be enjoyed equally, but this objective requires nothing more than the disclosure of basic facts so that outsiders may draw upon their own evaluative expertise in reaching their own investment decisions with knowledge equal to that of the insiders.

Facts:

Plaintiff-appellant Marcia Freeman is a stockholder of the Skyline Corporation, a major producer of mobile homes and recreational vehicles. Skyline is a publicly owned corporation whose stock is traded on the New York Stock Exchange (NYSE). Defendant Arthur J. Decio is the largest shareholder of Skyline, the chairman of its board of directors, and until September 25, 1972, was also the president of the company. Defendant Dale Swikert is a director of Skyline and prior to assuming the presidency from Decio in 1972 was Skyline's executive vice president and chief operating officer. Defendants Samuel P. Mandell and Ira J. Kaufman are outside directors of Skyline. Freeman filed suit against Decio, Swikert, Mandell and Kaufman, alleging that defendants sold the corporation's stock on the basis of material inside information during two distinct periods. The trial court granted summary judgment in favor of defendants. 

Issue:

Under Indiana law, may Freeman sustain a derivative action against certain officers and directors of the Skyline Corporation for allegedly trading in the stock of the corporation on the basis of material inside information?

Answer:

No.

Conclusion:

The court held that in light of defendants' affidavits and documentary evidence, Freeman failed to create a genuine dispute as to whether the defendants' sales of stock were based on inside information. Alternatively, the court held that Freeman had failed to state a cause of action in that Indiana law had never recognized a right in a corporation to recover profits from insider trading.