The Honeymoon Is Over: Post-DOMA, Same-Sex Couples Now Spouses For Purposes Of The Securities And Exchange Act Rules

The Supreme Court in U.S. v. Windsor held that the federal Defense of Marriage Act’s (DOMA) section defining marriage as between a man and woman is unconstitutional because it violates the Fifth Amendment’s equal protection clause. Under Section 3 of DOMA a person could only be considered a spouse under federal law if they were married to a person of the opposite sex.

The term “spouse” appears several times in the Securities and Exchange Act Rules. Exchange Act Rule 10b5-2 provides a non-exclusive definition of circumstances in which a person has a duty of trust or confidence for purposes of the misappropriation theory of insider trading. The misappropriation theory expands the traditional view of insider trading to cases where a person misappropriates confidential information in breach of a duty owed to the source of the information.

Subsection (b)(3) of Rule 10b5-2 enumerates circumstances where this duty is presumed to exist and includes circumstances when “a person receives or obtains material nonpublic information from his or her spouse[.]” Because Rule 10b5-2’s enumerated list is non-exclusive it’s possible a duty of trust and confidence could be found between domestic partners regardless of the Windsor ruling. However, the expanded definition of spouse post-Windsor shifts the burden, creating a rebuttable presumption that such a duty exists between same-sex couples in states where they are legally married for the purposes of the misappropriation theory of insider trading.

There are other instances where the term spouse may be significant under the securities laws, including beneficial reporting requirements for Section 16 insiders and Audit Committee independence rules.