If the Second Circuit concludes that, after Kelly, confidential government information does not constitute property, the Court could reverse the convictions on this ground while leaving unaddressed its prior holding that there is no personal benefit requirement in Title 18 insider trader cases. As the petitioners warned the Supreme Court, prosecutors in this scenario would likely treat this silence as a green light to continue to charge insider-trading crimes where there is little to no evidence of a personal benefit to the tipper, or tippee knowledge of that benefit. Of course, under such circumstances, prosecutors would not have the benefit of Blaszczak to rely on, and thus there could be litigation risk to the government depending on the facts of the particular case.
- Davis Polk & Wardwell LLP, Second Circuit Lowers the Bar for Charging Criminal Insider Trading (Jan. 7, 2020)
The court held that the “personal benefit” test for insider trading established by the Supreme Court in Dirks v. SEC does not apply to wire and securities fraud under Title 18 of the U.S. Code. Additionally, the court held that confidential government information constitutes “property” for the purposes of federal fraud statutes. The ruling will make it easier for the government to prosecute insider trading even when there is no clear benefit to the source who provided the information. (footnote omitted)
- Orrick, The Call for a Statutory Insider Trading Law (March 7, 2017)
Judge Jed S. Rakoff (S.D.N.Y.) recently made headlines after urging lawyers to draft and advocate for a more straightforward insider trading statute to replace judicially-created insider trading law. During his keynote speech at the New York City Bar’s annual Securities Litigation & Enforcement Institute, Judge Rakoff explained that the law has become overly-complicated since courts were forced to define insider trading by shoehorning the concept into the fraud provisions of the Securities Exchange Act of 1934. As a result, increasingly suspect theories have been developed to address potential insider trading in an expanding variety of scenarios.
- K&L Gates LLP, Insider Trading Law After Salman
Cleary Gottlieb Steen & Hamilton LLP, Supreme Court Clarifies Insider Trading Liability for Confidential Tips
Davis Polk & Wardwell LLP, White Collar Update: Supreme Court Rejects Second Circuit’s Narrow Interpretation of Insider-Trading Law
Paul, Weiss, Rifkind, Wharton & Garrison LLP, Supreme Court Reaffirms Dirks, Confirms that a Gift of Information to a Trading Relative or Friend Satisfies Personal Benefit Requirement for Insider Trading
- The Federalist Society, Insider Trading & the Rule of Law
- H. Nejat Seyhun & Taylan Mavruk, SEC Needs to Rewrite its 10b5-1 Safe Harbor Rules