Second Circuit Overrules Limitation on Insider Trading Liability Established in U.S. v. Newman

A divided panel of the U.S. Court of Appeals for the Second Circuit issued another in a series of important insider trading decisions regarding the personal benefit requirement in the context of gifting confidential information, sustaining the conviction of a former portfolio manager. In doing so, the panel expressly overruled a significant aspect of the Court’s 2014 decision in United States v. Newman, holding that a “meaningfully close personal relationship” was no longer required, at least in the Second Circuit, to prove both civil and criminal insider trading when a tipper makes a gift of material, non-public information. In this article, partners Harry Davis, Marc Elovitz, David Momborquette, Gary Stein, Peter White and associate Mark Garibyan discuss the decisions and its practical implications.