A split three-judge panel of the federal appeals court in New York again upheld the September 2014 conviction of Mathew Martoma, a former portfolio manager for S.A.C. Capital Advisors, LLC – then a hedge fund – for insider trading. The same divided panel previously upheld Mr. Martoma’s conviction in August 2017. (Click here for background facts relevant to this appeal and the panel’s prior decision in the article “Former Portfolio Manager’s Conviction for Insider Trading Upheld by Federal Appeals Court Despite Same Court’s Prior Contrary Reasoning” in the August 27, 2017 edition of Bridging the Week.) The panel reconsidered its earlier decision in order not to be inconsistent with a prior decision of the same federal appeals court in 2014 involving alleged insider trading by Todd Newman and Anthony Chiasson – also former portfolio managers. In that case, the court held that, in prosecuting the defendants, the US government failed to demonstrate that the initial insiders from whom defendants’ liability ultimately derived received sufficient personal benefit to establish their (let alone defendants’) securities law liability, in part, because there was no meaningfully close relationship between the persons. (Click here for background on this decision in the article “Appeals Court Sets Aside Insider Trading Convictions Saying Traders Distance From Corporate Insiders Too Far” in the December 14, 2014 edition of Bridging the Week.) The divided three-judge panel hearing Mr. Martoma’s appeal held that a meaningfully close relationship could be found where there is a shared relationship suggesting a quid pro quo, or that a tipper gifted information with the intent to benefit a tippee. Although the panel faulted the jury instructions for not requiring the jury to find either a quid pro quo relationship or a gift of inside information with an intent to benefit the tippee, it considered the error non-material. This was because, in this case, Mr. Martoma’s prior payment of US $70,000 consulting fees to the tipper demonstrated a personal benefit received by the tipper for disclosing inside information to Mr. Martoma with the expectation that Mr. Martoma would trade on it.