Insider Trading by Personal Betrayal: The Jennings DOJ and SEC Cases May Test the Boundaries of “Duty” Under the Misappropriation Theory

The US Securities and Exchange Commission (“SEC”) and the US Attorney’s Office for the District of New Jersey (“DOJ”) recently charged former professional soccer player Justin Jennings with insider trading for allegedly using material nonpublic information (“MNPI”) from his romantic partner’s work laptop and, without her knowledge, used it to trade in options. Jennings’s profits allegedly topped $2.7 million.

The government’s liability theory hinges on an expansive interpretation of the types of relationships that establish presumptive duties under the longstanding misappropriation theory of insider trading liability and SEC Rule 10b5-2. If litigated, the SEC/DOJ Jennings cases present an opportunity to test (i) the boundaries of the relationships and circumstances that create the required duty to establish insider trading liability, and (ii) whether the SEC’s adoption of Rule 10b5-2 exceeded its authority. 

Key Takeaways:

• May be used to test the boundaries of insider trading liability. The SEC and DOJ allege that a romantic relationship alone can create the “duty of trust or confidence” necessary to support insider trading liability under the misappropriation theory and, if litigated, the case could clarify the scope of relationships and circumstances that create the requisite duty.
• No traditional tipper-tippee relationship. The government does not allege that Jennings’s partner intentionally shared MNPI or even knew he was trading. Instead, the theory is based on Jennings allegedly accessing confidential information from her work laptop without authorization.
• Potential challenge to SEC Rule 10b5-2. The case may be used to test whether Rule 10b5-2, which expands the circumstances under which a duty of trust or confidence exists, remains valid after the Supreme Court’s decision in Loper Bright eliminating Chevron deference.

1. The Jennings Cases

The SEC complaint and the parallel criminal indictment allege that Jennings misappropriated MNPI about eight public companies that he obtained by accessing his partner’s company-issued laptop.¹ According to the government, Jennings’s partner was an account executive for a strategic communications and investor relations firm that had a hybrid work policy, which periodically allowed her to work from her one-bedroom apartment, where Jennings often stayed for days at a time.² The government alleges that she shared the laptop’s password with Jennings and showed him how her company’s internal database functioned because “he was working on coding and database projects” and she believed he had “legitimate interest in her work.”³ Jennings’s partner allegedly allowed him to use her work laptop unsupervised and for his personal use.⁴

The government’s case rests on the theory that Jennings using MNPI “in breach of his duty of trust or confidence” to his partner, which is based on their “history, pattern, and practice of sharing confidences”⁵ and “by virtue of their close personal relationship.”⁶ Critically, neither the complaint nor the indictment alleges that Jennings’s partner tipped him or even knew he was trading. The government’s theory depends entirely on a duty allegedly arising from the relationship itself, breached through surreptitious access rather than any communication of information by the source.

2. The Misappropriation Theory and Duty

In United States v. O’Hagan,⁷ the Supreme Court upheld the misappropriation theory of insider trading, which prohibits a person from trading based on MNPI obtained in breach of a fiduciary or other similar duty arising from a relationship of trust and confidence to the source of the information.⁸ The Court held that “[d]eception through nondisclosure is central to liability”⁹ and that liability attaches only upon a “breach of a duty owed to the source of the information.”¹⁰ But it provided limited guidance on which relationships confer a duty, observing only that “recognized dut[ies]” will suffice.¹¹

Following O’Hagan, the SEC adopted Rule 10b5-2 to “clarify and enhance” the misappropriation theory.¹² The Rule provided a list of “[e]numerated ‘duties of trust or confidence’” and circumstances that give rise to a duty, beyond traditional fiduciary relationships.¹³ For example, a duty is assumed under the Rule whenever: (1) a person agrees to maintain information in confidence; (2) the parties have a history, pattern, or practice of sharing confidences such that the recipient knows or reasonably should know that the source expects confidentiality; and (3) a person receives or obtains MNPI from a spouse, parent, child, or sibling.¹⁴

Courts have upheld the Rule and applied the history-pattern-practice standard, while rejecting the argument that a formal, fiduciary relationship is required. The Third Circuit in McGee expressly upheld Rule 10b5-2(b)(2) as a valid exercise of SEC authority, relying on Chevron deference.¹⁵ The Eleventh Circuit in SEC v. Yun, 327 F.3d 1263 (11th Cir. 2003), held that where parties have a history or practice of sharing business confidences that are generally maintained, the conveying party has a reasonable expectation of confidentiality, the breach of which can yield insider-trading liability.¹⁶ And the First Circuit in United States v. McPhail, 831 F.3d 1 (1st Cir. 2016), explained that Rule 10b5-2 reflects the traditional agency-law principle that a fiduciary relationship can evolve by implication from the parties’ conduct. ¹⁷ Additionally, in settled cases such as SEC v. Meadow and SEC v. Markin, the SEC relied on Rule 10b5-2 to find a duty based on romantic relationships outside subsection Rule 10b5-2(b)(3)’s family categories, but because those matters were not litigated, no court tested the theory’s limits.¹⁸

3. Loper Bright Opportunity: Challenging Rule 10b5-2

In June 2024, the Supreme Court in Loper Bright Enterprises v. Raimondo, 603 U.S. 369 (2024), overruled the longstanding Chevron deference framework, holding that “courts need not and under the [Administrative Procedure Act] may not defer to an agency interpretation of the law simply because a statute is ambiguous.”¹⁹ The decision fundamentally altered the landscape for challenges to agency rulemaking, including rules adopted by the SEC.

Because McGee is the only appellate decision to have expressly upheld Rule 10b5-2(b)(2) on the merits—and did so by applying Chevron deference—the Third Circuit’s reasoning may no longer be sound in a post-Loper Bright world.²⁰ Although Loper Bright did not automatically overturn prior case law where courts engaged in Chevron deference, Jennings may still present an opportunity to challenge the Rule.

4. Practical Takeaways

Jennings presents facts that do not map cleanly onto any of Rule 10b5-2’s three duty categories—the government, for instance, does not allege any pattern of sharing business confidences—which could make it a vehicle to test both the boundaries of the Rule and its underlying statutory authority. We will continue to monitor Jennings and alert our clients to developments in this area. 

Regardless of whether Rule 10b5-2 ultimately faces a successful challenge, Jennings is a good reminder of important lessons for companies and their employees:

• Review insider trading policies and procedures. Companies should consider periodically reviewing and, if necessary, updating their insider trading compliance policies and procedures to ensure they address modern scenarios in which MNPI can be accessed, including through shared devices, remote-work environments, and personal relationships. Policies should clearly define the scope of confidentiality obligations, including important prohibitions against sharing confidential information.
• Review insider trading training modules. Companies should consider whether their insider trading training modules have been updated to match the government’s ability to expand the boundaries of what constitutes insider trading through novel theories such as “shadow trading” and cases like Jennings. 
• Reinforce employee confidentiality obligations. Employees who handle MNPI should be reminded of their obligations to maintain the confidentiality of company information (and, where applicable, client information), including when working remotely or from shared spaces. Companies should consider implementing technical safeguards such as automatic screen locks and restricted-access credentials.

¹ Indictment, United States v. Jennings, No. 2:26-cr-316 (D.N.J. June 23, 2026), at 1, 13; Complaint, SEC v. Jennings, No.2:26-cv-07525 (D.N.J. filed June 23,2026), at 1–3, 23–27.
² Complaint at 26.
³ Complaint at 27.
⁴ Id.
⁵ Complaint at 58–60.
⁶ Id. at 58. 
⁷ United States v. O’Hagan, 521 U.S. 642 (1997).
⁸ Id. at 652.
⁹ Id. at 654.
¹⁰ Id. at 652.
¹¹ United States v. McGee, 763 F.3d 304, 311 (3d Cir. 2014) (quoting O’Hagan, 521 U.S. at 666).
¹² Proposed Rule, Selective Disclosure and Insider Trading, 64 Fed. Reg. 72,590, 72,602 (proposed Dec. 28, 1999).
¹³ 17 C.F.R. § 240.10b5-2.
¹⁴ See id.
¹⁵ McGee, 763 F.3d at 313–17.
¹⁶ Yun, 327 F.3d at 1272–73.
¹⁷ McPhail, 831 F.3d at *7.
¹⁸ See Press Release, SEC, SEC Charges Stockbroker and Friend with Insider Trading, No. 2023-124 (June 29, 2023); Litigation Release No. 25765 (June 30, 2023); Complaint, SEC v. Meadow, No. 1:23-cv-05573 (S.D.N.Y. filed June 29, 2023); Litigation Release No. 25451 (July 26, 2022); Complaint, SEC v. Markin, No. 1:22-cv-06276 (S.D.N.Y. filed July 25, 2022); Press Release, U.S. Att’y’s Office, S.D.N.Y., Former FBI Agent Trainee Sentenced to 15 Months in Prison for Insider Trading Scheme (Mar. 13, 2024).
¹⁹ Loper Bright Enterprises, 603 U.S. at 413.
²⁰ See McGee, 763 F.3d at 313–17.

This memorandum is a summary for general information and discussion only and may be considered an advertisement for certain purposes. It is not a full analysis of the matters presented, may not be relied upon as legal advice, and does not purport to represent the views of our clients or the Firm. Jim Bowman, an O’Melveny partner licensed to practice law in California; Mark A. Racanelli, an O’Melveny partner licensed to practice law in New York; Sharon M. Bunzel, an O’Melveny partner licensed to practice law in California; Andrew J. Geist, an O'Melveny partner licensed to practice law in New York; Mia N. Gonzalez, an O’Melveny partner licensed to practice law in New York; Michele W. Layne, an O’Melveny of counsel licensed to practice law in California; Waqas A. Akmal, an O’Melveny counsel licensed to practice law in California; and Faustino S. Galante, an O'Melveny associate licensed to practice law in New York, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.

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