We’ve taken a summer (early fall?) recess here at White Collar Alert but have been jolted back into the blogosphere with the news of the Supreme Court’s denial of certiorari in United States v. Newman. We’ve written and blogged repeatedly (and here, too) about the Second Circuit’s decision in Newman, including the Government’s petition for a writ of certiorari to the Supreme Court. Yesterday, the Court denied the government’s petition, meaning the Second Circuit’s opinion remains binding precedent in the Second Circuit.
What exactly does this mean? For starters, the Second Circuit’s holding stands: the government must prove that an insider disclosed confidential, non-public information for a personal benefit, which must be “of some consequence” resembling “a relationship between the insider and the recipient that suggests a quid pro quo” or an intention to confer a future benefit. Further, the Second Circuit’s other holding in Newman – that a downstream tippee must know that the corporate insider-tipper received a personal benefit from the tip – was not subject to the petition for writ of certiorari and further remains binding in the Second Circuit.
What is left is to determine what the implications are for existing and future insider trading prosecutions. Already, U.S. Attorney for the Southern District of New York Preet Bharara forecasted in a press conference following the high court’s denial that executives and traders will have a “bonanza for friends and family of rich people who have access to material nonpublic information.” Bharara’s “bonanza” rhetoric appears, to put it mildly, over the top, as he acknowledged that 90% of the cases he’s brought are not implicated by the Circuit’s decision.
As for the other 10%? We at White Collar Alert will continue to stand by to monitor how the courts – and the nation’s prosecutors – approach insider trading cases in light of the Second Circuit’s now final decision. From our perspective, however, having more clearly defined standards for what is a “personal benefit” and what the government is required to prove a defendant knew before trading in a security promotes a more fair and just application of the securities laws, which are designed to protect against breaches of fiduciary duties by insiders. For now, at least, the precedential value of the Second Circuit’s decision is secure.