Notable Insider Trading Decision Remanded by Supreme Court in Light ‎of Bridgegate Ruling

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On December 30, 2019, the Second Circuit issued a ruling in U.S. v. Blaszczak, 947 F.3d ‎‎19 (2d Cir. 2019). In Blaszczak, a former Medicare official gave tips to analysts on changes to ‎government reimbursement rates that he received from former government colleagues. The ‎Second Circuit held that the government had a proprietary right to keep the rates confidential ‎and, thus, this non-public information could be considered “property” under the Title 18 ‎securities and wire fraud statutes. In our January 23, 2020 QuickStudy discussing this ruling, we ‎pointed out that the Blaszczak decision would likely make it easier for federal prosecutors to ‎pursue insider trading charges.‎

On January 11, 2021, the Supreme Court vacated and remanded the Blaszczak case for ‎further consideration in light of the Court’s May 2020 ruling in U.S. v. Kelly, No. 18-1059 ‎‎(2020). In U.S. v. Kelly, the Supreme Court reversed the Third Circuit’s conviction of New Jersey ‎officials for wire fraud in conjunction with their role in the 2013 “Bridgegate” scandal. The ‎Court found that the scheme did not constitute wire fraud because the officials’ goal was not to ‎obtain money or property. The officials’ realignment of lanes on the George Washington Bridge ‎for a traffic study was an exercise of their regulatory authority, which did not implicate the ‎government’s role as a “property holder.” Further, the officials’ use of Port Authority employees ‎to staff the bridge was not the object of their fraud, but rather, an incidental consequence of the ‎scheme. Thus, although the officials likely abused their power, the Court concluded that they did ‎not violate the wire fraud statute.‎

The defendants in Blaszczak are now challenging their convictions for wire fraud and ‎securities fraud, arguing that the Second Circuit’s ruling conflicts with the Supreme Court’s ‎definition of “property” in Kelly, which narrowed the types of government information that are ‎considered “property” for purposes of the Title 18 securities and wire fraud statutes. The holding ‎in Kelly is consistent with Judge Kearse’s dissent in Blaszczak, which argued that Medicare ‎reimbursement rates were not a “thing of value” for purposes of the Title 18 statutes because the ‎government is not a business and did not seek to profit from the information. Therefore, in light ‎of Kelly, it seems likely that the Second Circuit will overturn the “property” portion of Blaszczak. ‎It will be important to watch how the Second Circuit rules on this issue, as it may further limit ‎the types of cases prosecutors can bring under the Title 18 securities and wire fraud statutes in ‎the future.‎

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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