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By Danny Cevallos

If the allegations in the indictment of New York Rep. Chris Collins are true, this appears to be a clear violation of some very unclear laws.

Collins, an upstate GOP congressman, allegedly used his position on the board of a biotech firm to disclose sensitive information to help family and others close to him avoid more than $768,000 in losses.

Insider trading laws are a study in contradiction. Our capitalistic system is designed to reward “asymmetry of information.” This exists when a party obtains greater information in a market relative to other participating parties. But, the securities market requires rules so that the system remains minimally fair. Fairness is not an ultimate goal of the marketplace — after all, it’s based on inequities. Rather, minimum fairness ensures the integrity of the system, so that people will not be afraid to participate.

Not all privileged knowledge is insider trading. There is no general duty between market participants to forgo actions based on material, nonpublic information, according to the Supreme Court.

Defining insider trading is further complicated because there are two separate ways a defendant can be liable for insider trading: the “classical” theory and the “misappropriation” theory.

The classical theory is what most people think of when insider trading is mentioned: A person who is an employee or board member of a company using nonpublic information gleaned from that role to decide when to buy or sell securities.

Under the misappropriation theory of insider trading, a defendant is guilty of insider trading when they obtain nonpublic information but cannot act on it because that would be in breach of a duty owed to the source of the information.

This is why the Collins indictment contains allegations about Innate’s confidentiality policy and prohibition on insider trading: to establish liability for misappropriating the information, in addition to showing his awareness that it was wrong.

It’s also hard to define the limits of who should be a defendant in insider trading cases. Someone like Christopher Collins is a “tipper,” the corporate insider who obtains the nonpublic information. His co-defendants are “tippees”; they are not insiders, but they receive the sensitive insider information. The person who is the genesis of the information is the easier case for liability. But, how far out should tippees be liable? As for the allegations that the elder Collins directly called his co-defendant son and gave him the sensitive information, that’s a strong case for direct tippee liability. But what if the son disseminates that information in an extended chain, where the “tippees” at the end of the line don’t even know the source of the information? What if the son tweeted it out to his followers? Are followers automatically liable if they act on it?

The Supreme Court has held that a “tippee” can only be held liable for insider trading when (1) the insider has breached his fiduciary duty to the shareholders by disclosing the information; and (2) the tippee knows or should know about the tipper’s breach.” In determining whether there has been a breach of that duty, courts will look at whether the tipper personally will benefit, directly or indirectly, from his disclosure to the tippee.

One of the specific examples offered by the Supreme Court mirror the allegations here: where an insider makes a gift of confidential information to a trading relative or friend. The tip and subsequent trade might as well be by the insider himself. That Collins didn’t actually sell off his shares is ultimately immaterial. His personal benefit is the benefit he obtained from simply making a gift of confidential information to a trading relative or friend.

Danny Cevallos is an MSNBC legal analyst. Follow @CevallosLaw on Twitter.