On Monday, October 5, the U.S. Supreme Court denied the Department of Justice’s petition for writ of certiorari seeking review of the Second Circuit’s controversial decision in U.S. v. Newman. In Newman, the United States Court of Appeals for the Second Circuit reversed the insider trading convictions of former Level Global Investors LP manager Anthony Chiasson and former Diamondback Capital Management LLC manager Todd Newman, finding that the Government had failed to show that two tippers received significant personal benefits for tips and that the tippees – Chiasson and Newman – knew about the benefits. The Second Circuit ruled that “even in the presence of a tipper's breach, a tippee is liable only if he knows or should have known of the breach. … [W]ithout establishing that the tippee knows of the personal benefit received by the insider in exchange for the disclosure, the Government cannot meet its burden of showing that the tippee knew of a breach.”
The U.S. Supreme Court rejected the DOJ’s petition without comment, allowing the Second Circuit’s insider trading guidance to stand, despite the DOJ’s arguments that the Newman decision departed from past precedent, created a circuit split between the Second and Ninth circuits and restricted enforcement of the ban on insider trading.