Earlier this week, the United States Supreme Court declined to hear the federal government’s appeal of the ruling by the Court of Appeals for the Second Circuit in U.S. v. Newman. This leaves intact the Second Circuit’s quid pro quo standard for showing that a tipper received the type of personal benefit sufficient to create criminal insider trading liability. It also leaves in place the apparent split on this issue that was created by the Ninth Circuit’s U.S. v. Salman decision in July.
But do not let the recent surge of media attention distract you. Even under the heightened Newman standard for proving tipper/tippee cases, the Securities and Exchange Commission and criminal authorities will continue investigating individuals they believe traded on material nonpublic information purloined from an “insider.” As a result, corporate insiders and service providers must stay vigilant with material nonpublic information to avoid the time, financial, and emotional costs of being dragged into an investigation focused on trading by friends and relatives.
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