In a decision released last week, the Second Circuit Court of Appeals in Gupta v. United States upheld the insider trading conviction of former banker Rajat Gupta, rejecting Gupta’s argument that the jury instructions given by U.S. prosecutors did not meet the “personal benefit” standard set by the Second Circuit in Newman v. United States.


A federal jury convicted Gupta of tipping his friend, billionaire hedge fund founder Raj Rajaratnam, about Warren Buffet’s $5 billion investment in Goldman Sachs and about the bank’s financial results in 2018.

Gupta had already unsuccessfully appealed the conviction once to the Second Circuit in 2014, challenging the admission of wiretap evidence and the exclusion of certain evidence he sought to introduce. He did not challenge the sufficiency of the jury instructions at his first appeal.

After Gupta’s first appeal was rejected, the Second Circuit decided Newman (which we have previously discussed here and here), holding that where a tipper provides a tip but does not get something of a financial or similarly valuable nature in return from the tippee, it will be insufficient to convict the tipper of insider trading.

Gupta appealed his conviction again, arguing that the jury instructions provided by prosecutors at trial – in particular, that the “personal benefit” received by the tipper need not be financial or tangible in nature – were invalidated by the Second Circuit’s decision in Newman. Gupta highlighted the following parts of the jury instructions in his challenge:

First, [the government must prove that] on or about the date alleged, Mr. Gupta engaged in an insider trading scheme, in that, in anticipation of receiving at least some modest benefit in return, he provided to Mr. Rajaratnam the material non-public information specified in the count you are considering…

[A]s to the benefit that the defendant anticipated receiving, the benefit does not need to be financial or to be tangible in nature. It could include, for example, maintaining a good relationship with a frequent business partner, or obtaining future financial benefits. (emphases and alterations from brief)

Second Circuit’s decision

The Second Circuit rejected Gupta’s appeal, finding that:

  • Gupta should have raised the jury instructions challenge on his first appeal, and pointed to the fact that the defendant in Whitman v. United States (decided before Newman) had objected to the jury instructions concerning personal benefit; and
  • The jury instruction that the personal benefit to Gupta need not have been financial or tangible, while contrary to Newman, was correct.

The Second Circuit noted that its formulation in Newman that the tipper must receive something of a “pecuniary or similarly valuable nature” in exchange for a gift to family or friends was rejected by the Supreme Court in Salman v. United States. As we have previously written, Salman found that the personal benefit requirement in Newman was inconsistent with the Supreme Court’s earlier decision in Dirks v. SEC.

The Supreme Court’s 35-year old landmark ruling in Dirks stated that a personal benefit may be inferred where the circumstances of the tipper-tippee relationship suggests a quid pro quo from the tippee, or from an intention to benefit the tippee. In Gupta, the Second Circuit noted that where the tippee is the “frequent business partner” of the tipper, the “tipper’s anticipation of a quid pro quo is easily inferable”.


The ruling appears to be a further departure, on the basis of the Supreme Court’s ruling in Dirks, from the personal benefit requirement as elaborated in Newman, which had previously frustrated prosecutors’ abilities to secure convictions in insider trading and tipping offences.

The Second Circuit in Gupta noted that Dirks suggests that there are “varying sets of circumstances each of which would warrant a finding of the tipper's illegal purpose”, and further clarifies the evidentiary burden needed to prove insider trading and tipping offences.

We note that the requirements for proving insider trading and tipping will vary by jurisdiction. In Ontario, there is no personal benefit requirement for a finding of tipping under the Securities Act. The Ontario Divisional Court in Finkelstein v. Ontario (Securities Commission) noted that, while motive is not a requirement for a finding of tipping, the motive for tipping can take many forms, including “[e]nhancing one’s reputation with a view to future benefits” and “[s]imple self-aggrandizement”.

We will continue to provide updates on significant securities and white collar enforcement cases.