Supreme Court Rejects Newman Appeal

Posted On Tuesday, October 6, 2015

Yesterday, the Supreme Court surprised many by declining to hear the Department of Justice’s (“DOJ”) appeal of the Second Circuit’s decision in U.S. v. Newman, a controversial insider trading ruling that the DOJ has warned will have dire effects on white-collar prosecutions and the integrity of the financial markets alike. 

Almost ten months ago, the Second Circuit, in a remarkable decision, reversed the insider trading convictions of former hedge fund managers Anthony Chiasson and Todd Newman for trading on insider information.  The Second Circuit held that to prove illegal insider trading between a tipper and tippee, the government must prove the tipper received a real, potentially pecuniary, benefit and that the tippee knew of the benefit.  In overturning the convictions of Chiasson and Newman, the Court held that the government had not proven that either man knew they were receiving illegal tips or that the corporate insiders who had disclosed the information received any actual benefit.  In his writ of certiorari, U.S. Solicitor General Donald Verilli argued that the Second Circuit’s ruling misread the Supreme Court’s decision in Dirks v. Securities and Exchange Commission, which the Solicitor General argued held that a tipper can be liable for benefiting from making a gift of insider information to another. 

The ruling in Newman thus arguably makes it much more difficult to bring cases against corporate officers who disclose insider information to family and friends. In a press conference on Monday, U.S. Attorney Preet Bharara stated that his office would struggle with bringing those types of cases post-Newman and that this variety of insider trading may now go largely unpunished. 

As reported in Kaja Whitehouse’s analysis of the decision in the USA Today, the ruling in Newman, now undisturbed by the Supreme Court, could have a significant impact on pending cases.  This includes the appeal by SAC Capital’s Michael Steinberg, the possibility of overturning the guilty pleas of the analysts who provided information to Newman and Chiasson, as well as the lawsuit by Chiasson’s former business partner David Ganek against the U.S. government, where he seeks damages related to the demise of their hedge fund Level Global.