Second Circuit Affirms Dismissal of Private Insider Trading Claims Arising from Archegos Collapse, Finding Lack of Fiduciary Duty

The U.S. Court of Appeals for the Second Circuit recently affirmed the dismissal of shareholders’ insider trading claims against two banks that provided prime brokerage services to Archegos Capital Management, L.P., which collapsed in March 2021.¹ Appellants, plaintiffs in putative shareholder class actions, had alleged the banks used nonpublic information about Archegos’s imminent failure to trade shares of public issuers in which Archegos held significant positions, thereby avoiding substantial losses. The court, however, held that the claims failed because the plaintiffs’ allegations did not establish that (i) Archegos owed a fiduciary or fiduciary-like duty to the companies whose securities were traded, or (ii) that the banks owed a fiduciary or fiduciary-like duty to Archegos. The decision underscores that such a duty is a foundational prerequisite for insider trading liability.

This outcome stands in contrast to the SEC’s “shadow trading” case, SEC v. Panuwat, previously discussed here. There, the Northern District of California upheld a jury verdict finding that Panuwat improperly traded in a competitor’s stock using confidential, nonpublic information about his own company’s pending acquisition. The court concluded that Panuwat’s employment relationship, the company’s insider trading policy, and confidentiality obligations established the foundational duty that was lacking in Archegos. Panuwat is on appeal to the Ninth Circuit.

Together, these cases illustrate the significance of the existence, or absence, of a fiduciary or fiduciary-like duty to the analysis of insider trading liability under Section 10(b) of the Securities Act of 1934 and Rule 10b-5.² The question of whether the requisite duty exists often turns on the specific facts and circumstances and relationship between the trader and the information source.

Archegos: Arm’s-Length Dealings Are Not Enough

Plaintiffs’ Background Allegations. Archegos, a private investment firm, built large, nonpublic positions in several issuers through swap contracts with its banks. The banks, in turn, hedged their exposure by buying the issuers’ stock. When Archegos defaulted on margin calls, the banks sold their positions in the issuers before Archegos’s deteriorating financial condition became public. Shareholder plaintiffs claimed this trading was unlawful insider trading.

Duty Analysis. The Second Circuit examined whether plaintiffs-appellants had sufficiently alleged an insider trading claim under either the “classical” or “misappropriation” theories of insider trading, each of which requires a breach of a fiduciary duty or other similar duty arising out of a relationship of trust and confidence. Under the “classical theory,” a corporate insider is prohibited from trading in the shares of a corporation based on material, non-public information (MNPI) in violation of the fiduciary duty that the insider owes to shareholders. Under the misappropriation theory, a person who is not a corporate insider, is nonetheless prohibited from trading based on MNPI obtained in (or as a result of) a breach of a fiduciary duty or other similar duty arising from a relationship of trust and confidence to the source of the information. The court found that plaintiffs failed to show the required duty under either theory.

Appellants argued that Archegos’s substantial swap positions made it a controlling shareholder and “constructive insider” of the issuers, thereby creating a fiduciary relationship to the issuers under the “classical theory.” The court rejected this argument because merely alleging that Archegos was the beneficial owner of large-quantity swaps based on each issuer’s stock was insufficient (i) to render Archegos a corporate insider, or (ii) to conclude that Archegos had access to the issuers’ confidential information or control over their corporate affairs.

Appellants also argued that the banks’ relationship with Archegos created a fiduciary duty for purposes of the “misappropriation theory.” The court rejected this argument, too, finding no fiduciary relationship because there was no allegation that the banks entered into an agreement with Archegos to act in its best interest or to serve as its fiduciary. Rather, the court found that the relationship between Archegos and its banks was an arm’s-length commercial arrangement, with no agreement or circumstances giving rise to a duty of confidentiality. The court, consistent with longstanding Second Circuit precedent, also pointed out that fiduciary obligations cannot be imposed unilaterally by merely sharing confidential information.

Panuwat: Employment Duties Supported Liability

Background. The SEC alleged Matthew Panuwat used confidential information learned through his employment about his company’s potential acquisition to buy call options in a third company. In 2024, a jury found him liable of insider trading, and the court denied his post-trial motions. The case is currently on appeal.

Duty Analysis. As in Archegos, the threshold question was whether a fiduciary duty existed and whether Panuwat breached that duty when he traded in the third company’s securities. The SEC advanced a theory similar to that of the Archegos plaintiffs, arguing that Panuwat engaged in insider trading because his trade in a third company’s securities breached a duty of confidentiality owed to his employer. In denying Panuwat’s post-trial motion, the court held that the jury’s finding of such a duty was supported by the “traditional principles of agency law” as applied to the employee-employer relationship or alternatively “the confidentiality agreement and insider trading policy that Panuwat signed” as an employee.³ Panuwat argues on appeal that the evidence did not establish a duty and that his company’s policy permitted the trade at issue. Unlike Panuwat, the Archegos plaintiffs could not allege the presence of an employment relationship, policies, or confidentiality agreements that could support the finding of a duty.

Implications and Takeaways

The line between lawful trading and insider trading liability often hinges on the existence of a fiduciary or fiduciary-like duty. Although both Archegos and Panuwat applied the same legal standards for establishing a duty, the different factual circumstances of the relationships between the traders and the sources of the information led to different conclusions. 

Archegos reiterates that merely receiving material, nonpublic information (for example, without an express or implied confidentiality obligation) is not enough to establish the requisite duty to maintain an insider trading case. Thus, an arm’s-length commercial relationship—without some confidentiality obligation—likely does not create the requisite duty. But, as Panuwat showed, courts and juries might find that employment, company policies, or confidentiality agreements might create the necessary duty.

Furthermore, in analyzing the risk of insider trading liability, it is important to evaluate with counsel all the pertinent facts and circumstances—not only as to the question of duty, but also including:

• What information does the trader have?
• By what means did the trader obtain the information?
• And whether the information is material and non-public?

¹ In Re Archegos 20A Litig., 2025 WL 2652262, at *4 (2d Cir. Sept. 16, 2025)
² Courts have held that proof of breach of a duty is not required for violations of Rule 14e-3, the SEC’s tender offer insider trading rule.
³ SEC v. Panuwat, 2024 WL 4602708, at *5-6 (N.D. Cal. Sept. 9, 2024).

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; Jorge deNeve, 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; and Michele W. Layne, an O’Melveny of counsel licensed to practice law in California, contributed to the content of this newsletter. The views expressed in this newsletter are the views of the authors except as otherwise noted.

© 2025 O’Melveny & Myers LLP. All Rights Reserved. Portions of this communication may contain attorney advertising. Prior results do not guarantee a similar outcome. Please direct all inquiries regarding New York’s Rules of Professional Conduct to O’Melveny & Myers LLP, 1301 Avenue of the Americas, Suite 1700, New York, NY, 10019, T: +1 212 326 2000.