The US District Court of Massachusetts in U.S. v. McPhail, et. al., Case No. 1:14-cr-10201, 2015 WL 2226249 (D. Mass. May 12, 2015), denied the defendants’ motion to dismiss an insider trading indictment in the wake of the U.S. v. Newman insider trading decision issued by the US Court of Appeals for the Second Circuit in 2014, which requires prosecutors to prove that the tippee had knowledge of the personal benefit received by the tipper who initially conveyed the insider information.
The indictment alleged that the defendant, Mr. McPhail, possessed insider knowledge received from a corporate insider and disseminated material, nonpublic information to his friends and acquaintances. The indictment asserts that Mr. McPhail did so with the intent that his friends would profit from buying and selling shares of an energy company on the basis of the inside information. The McPhail defendants argued, based on Newman’s holding, that there are no allegations that the corporate insider received any benefit, and even if Mr. McPhail could be considered a tipper under insider trading liability standards, there is also no allegation that he received a benefit.
The District Court rejected the defendants’ arguments and denied the motion. The District Court found that the indictment sufficiently alleged that Mr. McPhail received a benefit. The District Court also found that the indictment adequately alleged a close relationship between Mr. McPhail and the insider such that Mr. McPhail should have known that the insider’s communication should have been kept confidential.
US v. McPhail, et al., Case No. 1:14-cr-10201, 2015 WL 2226249 (D. Mass. May 12, 2015)