A federal District Court granted a defendant’s motion to dismiss a claim under Section 20A of the Securities Exchange Act of 1934, which provides a private right of action against persons engaged in insider trading. Under Section 20A, a plaintiff must show that (i) the defendant violated a provision of Title 15 of the United States Code (which includes the Securities Exchange Act) or a rule or regulation promulgated thereunder, and (ii) such violation occurred by purchasing or selling a security while in possession of material inside information.
The only claim asserted against the defendant in question, apart from the Section 20A claim, was a “control person” claim under Section 20(a) of the Securities Exchange Act with respect to alleged Section 10(b) and Rule 10b-5 violations committed by others. While the “control person” claim satisfied the first requirement of Section 20A, the Court ruled that the second requirement of Section 20A could not be satisfied because the alleged Section 10(b) and Rule 10b-5 violations did not allege insider trading. (Makor Issues & Rights, Ltd. v. Tellabs, Inc., 2008 WL 2178150 (N.D. Ill. May 22, 2008))