694
Opinion of Thomas, J.
The Commission offers two grounds in defense of Rule 14e-3(a). First, it argues that § 14(e) delegates to the Commission the authority to "define" fraud differently than that concept has been defined by this Court, and that Rule 14e- 3(a) is a valid exercise of that "defining" power. Second, it argues that § 14(e) authorizes the Commission to "prescribe means reasonably designed to prevent" fraudulent acts, and that Rule 14e-3(a) is a prophylactic rule that may prohibit nonfraudulent acts as a means of preventing fraudulent acts that are difficult to detect or prove.
The majority declines to reach the Commission's first justification, instead sustaining Rule 14e-3(a) on the ground that
"under § 14(e), the Commission may prohibit acts not themselves fraudulent under the common law or § 10(b), if the prohibition is 'reasonably designed to prevent . . . acts and practices [that] are fraudulent.' " Ante, at 673 (quoting 15 U. S. C. § 78n(e)).
According to the majority, prohibiting trading on nonpublic information is necessary to prevent such supposedly hard-to-prove fraudulent acts and practices as trading on information obtained from the buyer in breach of a fiduciary duty, ante, at 675, and possibly "warehousing," whereby the buyer tips allies prior to announcing the tender offer and encourages them to purchase the target company's stock, ante, at 672-673, n. 17.9
I find neither of the Commission's justifications for Rule 14e-3(a) acceptable in misappropriation cases. With regard to the Commission's claim of authority to redefine the concept of fraud, I agree with the Eighth Circuit that the Commission misreads the relevant provision of § 14(e).
9 Although the majority leaves open the possibility that Rule 14e-3(a) may be justified as a means of preventing "warehousing," it does not rely on that justification to support its conclusion in this case. Suffice it to say that the Commission itself concedes that warehousing does not involve fraud as defined by our cases, see Reply Brief for United States 17, and thus preventing warehousing cannot serve to justify Rule 14e-3(a).
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