Home > Property & Casualty > Newman case continues to blur line of what is and is not insider trading

Newman case continues to blur line of what is and is not insider trading

The landmark December 2014 ruling in United States v. Newman by the United States Court of Appeals for the Second Circuit overturned the convictions of two hedge fund traders, Todd Newman and Anthony Chiasson. In early April, the Second Circuit denied reconsidering their ruling as requested by United States Attorney Preet Bharara. The government must now decide whether to appeal to the Supreme Court, and if they should depend on Congress adopting legislation for the first time that clearly provides a statutory definition of illegal insider trading.

These latest developments in the Newman case make it much more difficult for the government to prosecute individuals accused of insider trading. Prosecutors must now demonstrate that the defendant(s) alleged to have traded on confidential information leaked by a corporate insider:

  • Was aware that the insider received a personal benefit for leaking the information
  • Provided a personal benefit to the corporate insider that was more than simply friendship in exchange for divulging confidential information.

Needless to say, finding in evidence that the alleged defendants committed illegal insider trading while fulfilling these conditions will prove to be a challenge. Mr.Bharara’s office has echoed this sentiment, stating that if the case stands, it will “dramatically limit the government’s ability to prosecute some of the most common, culpable, and market-threatening forms of insider trading.” As a result of the Newman ruling, a number of people previously imprisoned for insider trading expressed their desire to challenge their convictions.

The insider trading law has developed over time through judicial decisions and government regulation because no Federal statute has ever provided a definition of the crime. However, it will be interesting to see if such a definition is provided as a result of this case due to pressure on Congress from individuals such as Supreme Court Justice Antonin Scalia and SDNY Judge Jed Rakoff. With this ruling, it may be time to review you Directors’ & Officers’ policy and make sure there are no restrictive exclusion relating to securities and/or insider trading activities. Having a stable and reliable D&O policy in place will make insider trading claims somewhat easier to navigate should something of this nature arise in a company.


About the Author

Mark Stiles is an Assistant Vice President at WGA and a member of the ExecutiveRisk Practice. He works with private and nonprofit organizations to assist them and their executives with protection for their exposures to Directors’ & Officers’ Liability, Employment Practices Liability, Fiduciary Liability, Crime, Kidnap & Ransom and Extortion.

617.646.6743 | Mstiles@wgains.com | Connect with Mark on LinkedIn |

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