Insider trading will be considered once by the Supreme Court after an overturned conviction is being challenged by government lawyers. The definition of insider trading was previously established prior by the Supreme Court. The upcoming consideration of United States vs. Newman may serve to draw the lines more clearly on what proof is needed to convict someone of insider trading.
The Justice Department petitioned the Supreme Court to review the decision on United States vs. Newman. In the case, two hedge fund managers, Todd Newman and Anthony Chiasson, acquired and acted on insider trading information second hand. The case was overturned by the United States Court of Appeals for the Second Circuit because the tippers (people working at companies that had dealings with the defendants respective hedge funds) were not proven to receive a direct benefit from relaying the information. The information was relayed to analysts at the defendants’ hedge funds, which the defendants then used and benefited from. However, all dealings were indirect.
Insider trading law as defined by the 1983 Supreme Court Ruling Dirks vs. Securities and Exchange Commission puts particular emphasis on the direct benefits to the person tipping the trader off to confidential information. The Newman decision places more emphasis on the relationship between the person passing information and the person trading. Government lawyers are concerned that the Second Circuit ruling will allow for more unscrupulous trading acts due to the difficulty of proving the nature of relationships between “tipper” and “tippee.”
The court is likely to hear the case after its summer recess concludes in late September.The law is redefined by court decisions on an ongoing basis. A good attorney stays abreast of new developments and uses the information to the best advantage of their clients.
Supreme Court Review Could Redefine Insider Trading, www.nytimes.com, Peter Henning, 31 Jul 2015
U.S. Appeals Major Insider Trading Case, www.scotusblog.com, Lyle Denniston, 30 Jul 2015, updated 31 Aug 2015