Second Circuit Raises The Bar For Proving Tippee Liability

Wednesday, the U.S. Court of Appeals for the Second Circuit vacated the criminal insider trading convictions of two former hedge fund managers, and in doing so, clarified the elements required to prove an insider trading charge against a "tippee." The Court held that the government must prove that an individual knew that a company insider had disclosed confidential information in exchange for a personal benefit, and also heightened the standard for proving a personal benefit. This decision is being seen as a "sweeping" blow to the government's recent successes in prosecuting insider trading.

The Decision

The Newman decision arises out of a Spring 2013 criminal insider trading trial in the Southern District of New York. At trial, the government alleged that a group of financial analysts exchanged nonpublic financial information that they received from Dell and NVIDIA employees prior to those companies' quarterly earnings announcements. Specifically, Todd Newman, a