The Second Circuit decision in the Newman case has provoked much discussion of the Supreme Court’s opinion in Dirks and how to interpret the requirements it lays out for tippee liability. But it’s important to remember that Dirks was not writing on a clean slate. This year is the 35th anniversary of the case that preceded Dirks and laid the foundation for the Supreme Court’s insider-trading jurisprudence, Chiarella v. United States.

I realize that this was not the Supreme Court’s first look at insider trading. That honor, arguably, goes to Strong v. Repide, 213 U.S. 419 (1909). But Chiarella was the court’s first discussion of insider trading under Rule 10b-5.

The facts of the Chiarella case are relatively simple. Vincent Chiarella, the defendant in the case, was an employee of Pandick Press, a financial printer. His company was hired to print announcements of takeover bids. Although the identities of the target corporations were concealed in the announcements, Chiarella was able to figure out who they were. He bought stock in the target companies and made a profit of roughly $30,000. He was convicted of a criminal violation of Rule 10b-5, but the Supreme Court overturned his conviction.

It’s important to remember the basic problem Chiarella had to deal with (or perhaps it’s fairer to say the problem as the Chiarella majority constructed it). Rule 10b-5 prohibits securities fraud. People engaged in insider trading don’t usually make false statements and, under the common law, mere silence is not usually fraud. Because of that, the majority in Chiarella rejected the notion that a mere failure to disclose nonpublic information prior to trading violates Rule 10b-5. There’s no fraud.

However, the majority pointed out that a failure to disclose can be fraudulent when the non-disclosing party has a duty to disclose to the other person “because of a fiduciary or other similar relation of trust and confidence between them.” That fiduciary duty, the majority indicated in dictum, does exist in the case of corporate insiders. But Vincent Chiarella was not an insider of the corporations whose stock he traded. Since the government had not otherwise shown that Chiarella violated a fiduciary duty by not disclosing to anyone, he was not liable under Rule 10b-5.

That’s the essence of Chiarella: nondisclosure violates Rule 10b-5 only if there’s a fiduciary duty to disclose. No fiduciary duty, no liability.

Everything that followed—Dirks; O’Hagan; the Second Circuit’s decision in Newman; even the SEC’s Rule 10b5-2—depends on Chiarella. How different things would have been if Justice Blackmun’s dissent had carried a majority. His view was that “persons having access to confidential material information that is not legally available to others” could not trade without liability under Rule 10b-5.

The ultimate irony of Chiarella is that, if the case were tried today, Vincent Chiarella would without a doubt be liable under Rule 10b-5. The Supreme Court’s subsequent decision in United States v. O’Hagan, 521 U.S. 642 (1997) makes it crystal clear that one can be liable for trading on the basis of nonpublic information obtained from one’s employer or client. But the majority in Chiarella refused, on procedural grounds, to reach that question.