E-mail Lis
• Click here to read Lis' Column, "Lis and the Single Girl"

Pillow talk — for most couples, these final few minutes of the night symbolize a moment of reprieve from the business of the day. It’s a time when you and your honey can share personal stories and chat about work. Pillow talk can be the perfect way to end the night … um, unless your work talk involves information that should be guarded rather than gossiped. Let me explain.

The Security Exchange Commission seems an unlikely culprit to care about your bedtime banter. However, the SEC suddenly discovered a rise in insider trading this year and connected the illegality to pillow talk. In other words, couples are spilling their companies' dirty little secrets to each other and instead of keeping the information between the sheets, some sweethearts are trading conversation for cash.

John Reid Stark, Chief of the Office of Internet at the SECm has worked on several of these cases. He says the agency filed seven cases against married couples this year, in stark contrast to only one similar incident in 2006. Regulators and market analysts cite several reasons for the increase. Some attribute it to recent bull markets and a temptation to get rich quick. Some maintain that a new generation of employees are too young to remember the scandals of the 80s, and a third theory intimates that with an increase in two couple incomes, there’s double the opportunity to access confidential information.

In May of 2007, the SEC filed charges against former Oracle Vice President Christopher Balkenhol. According to the Commission, Balkenhol learned about two sets of secret merger negotiations from his wife — who also worked at Oracle as the lead executive assistant to the CEO (Larry Ellison) and two co-presidents. The VP allegedly traded on “material, non-public” information, information that was not his for the taking. He eventually settled without admitting any wrongdoing. The SEC did not institute proceedings against his wife after determining that she was not aware of the scandal.

In another prominent case of pillow talk gone awry, Randi Collatta, an attorney and former compliance officer at Morgan Stanley, tipped her husband to a merger back in 2005. In turn, her hubby whispered that secret information to an ol’ high school buddy (who happened to be a broker-dealer). In exchange for the “tip,” the friend slipped the couple $9,000. Prosecutors estimate that the amount made by those involved in the insider trading amounted to a small fortune — anywhere from $8 to $15 million! Both Mrs. Collatta and her husband pled guilty to securities fraud and conspiracy to commit a fraud.

Let me alert talkative twosomes that even if you make nowhere near $8 million, “If they [SEC] are presented with the right substantive facts, it can be perfectly fine for the [Commission] to bring charges. They want a deterrent effect,” warns Karl A. Groskaufmanis, a lawyer at Fried, Frank, Harris, Shriver and Jacobson in Washington. Additionally, you don’t even have to make money for the Feds to flag suspicious activity. Regulators have also filed cases against those who make no profit whatsoever.

Patricia Rocklage, the wife of the former executive of Cubist Inc, a biotech company, learned from her spouse that one of the firm’s drugs had failed a crucial clinical test. Although her husband admonished her not to disclose this secret, prosecutors said she still told her brother, who then told a friend. The friends, in turn, dumped stock avoiding a colossal loss when the price dropped after public disclosure. The SEC sued, but Mrs. Rocklage, her brother and the friend all agreed to settle. Despite Mrs. Rocklage not pulling a nickel, she could be on the hook for more than $300,000 in fines. I’d say, not worth it!

There are two theories involved under insider trading. The first theory, referred to as classic insider trading is regulated by Rule10b-5 promulgated by the SEC under the authority granted by the Securities Exchange Act of 1934. This is your stereotypical insider trading case. It involves a corporate insider who knowingly trades in company stock on the basis of material, non-public information as well as corporate insiders who have tipped others and traded on this information. (Think Enron, Tyco and WorldCom — these scandals were all of the classic branch.) Rule 10b-5 prohibits corporate insiders to trade based on insider information as they breach a fiduciary duty owed to the corporation. A corporate insider can be held liable for merely relaying non-public material information to someone outside the company, even if the insider made no trades.

The second theory, “misappropriation,” applies to someone who is not a corporate insider, but rather someone who owes a fiduciary duty to the source of the material non-public information for some reason. Misappropriating confidential information for securities trading purposes, in breach of a duty owed to the source of that information, gives rise to a duty to either disclose or abstain. In plain English, the outsider (aka the misappropriator) who has no ties to the corporation can be liable for insider trading if they fail to abstain from using the information or disclose the secret to the public. It’s under this theory that courts construe a duty of trust and confidence when the communicator of the information was a spouse, sibling, parent or child of the recipient, unless the recipient can show there was no reasonable expectation of confidentiality. So, you can be on the hook and have no direct connection to the corporation.

Sharing loved ones dirty little secrets not only can get you in trouble with your partner in crime, but with the law. After the passage for the Sarbanes-Oxley law, the maximum term of imprisonment for those convicted of insider trading doubled from 10 to 20 years and penalties escalated from $1 million to $5 million. Yikes!

Bottom Line: I’d say that you and your sweetheart should leave the office behind and stick to good ol’ fashioned sharing of personal sentiments. It may be safer to enrich your relationship than your bank balance. After an honest day’s work, let the night end with your ethics intact, and as my dad always says, “The softest pillow is a clear conscience.”

• Click here to read Lis' Column, "Lis and the Single Girl"

Today, Lis answers this viewer question:

A young woman won a pageant — but she may never get the money they promised! What went wrong? Are pageant organizations at the local and state levels wrongly withholding scholarships from winners? Read more

*Disclaimer

The information contained in this Web site feature entitled “LIS ON LAW,” is provided as a service to visitors of foxnews.com, and does not constitute legal advice or establish an attorney client relationship. FOX NEWS NETWORK, LLC makes no claims, promises or guarantees about the accuracy, completeness, or adequacy of the information contained in or linked to this web site feature and its associated sites. Nothing provided herein should be used as a substitute for the advice of your own counsel.

Lis Wiehl joined FOX News Channel as a legal analyst in October 2001. To read the rest of Lis's bio, click here.