The 1988 Federal Insider Trading and Securities Fraud Enforcement Act codifies the misappropriation theory as a means to establish liability under the insider trading laws. Under the misappropriation theory, liability arises when an individual trades on the basis of information acquired in violation of a fiduciary duty of confidentiality owed to another, whether it be a corporation, an employer, or an individual. This comment reviews the evolution of section 10(b) and rule 10b-5 of the act. It then details the misappropriation theory's development, the Second Circuit Court of Appeals' application of the theory, and the U.S. Supreme Court's position on the theory. In United States v. Carpenter (1987), the Second Circuit held that an employee's misappropriation of the employer's material nonpublic information was a violation of the Federal securities law, even though the culpable employee was not a corporate insider. Upon appeal, the U.S. Supreme Court unanimously affirmed the conviction based on mail and wire fraud statutes, but it failed to address the merits of the misappropriation theory and the section 10(b) violations. For the practitioner, this comment delineates the parameters of the misappropriation theory and its effect on a section 10(b) cause of action. In critiquing the misappropriation theory and the act, this comment concludes that the theory is a valid approach for establishing liability in current complex securities markets. 225 footnotes