Grand Metropolitan PLC (Grand Met) planned to make a tender offer as part of an attempted takeover of the Pillsbury Co. Grand Met hired Robert Falbo, an independent contractor, to complete electrical work as part of security renovations to its offices to prevent leaks of information concerning the planned tender offer. Falbo was given a master key to access the executive offices. When an executive secretary told Falbo that a takeover was brewing, he used his key to access the offices and eavesdropped on conversations; in this way, he learned that Pillsbury was the target. Falbo bought thousands of shares of Pillsbury stock for less than $40 per share. Within two months, Grand Met made an offer for all outstanding Pillsbury stock at $60.00 per share and ultimately paid up to $66 per share. Falbo made a profit of more than $165,000. The Securities and Exchange Commission (SEC) filed a suit in a federal district court against Falbo and others for alleged violations of, among other things, SEC Rule 10b-5. [SEC v Falbo, 14 F.Supp.2d 508 (S.D.N.Y. 1998)]

Under what theory might Falbo be liable? 

Do the circumstances of this case meet all of the requirements for liability under that theory? describe. 

Remember to justify your answer using information from your reading an be sure to:
1. Examine the SEC Rule 10b-5.
2. Discuss whether or not Falbo was liable under the misappropriation theory.