Marketplace of Ideas: United States v. Newman

Yesterday and today, we are running a number of posts related to the recent United States v. Newman decision in which the Second Circuit overturned the convictions for insider trading and conspiracy to commit insider trading of Todd Newman and Anthony Chiasson.  Messrs. Newman and Chiasson were hedge fund portfolio managers at Diamondback Capital Management, LLC and Level Global Investors, L.P., respectively.  The government alleged that a cohort of analysts at various hedge funds and investment firms obtained material, nonpublic information from employees of Dell and NVIDIA—two publicly traded technology companies—shared it amongst each other, and subsequently passed it on … Read more

Jill Fisch Headshot

Newman Reins in Criminal Prosecution of Remote Tippees for Insider Trading

In its recent decision in United States v. Newman,[1] the United States Court of Appeals for the Second Circuit provided important guidance on the scope of insider trading liability. The case concerned the liability of two hedge fund managers, Anthony Chiasson and Todd Newman, who were alleged to be members of a group of financial analysts who shared information about various publicly-traded companies. Chiasson and Newman were so-called “remote tippees” in that they were each multiple levels removed from the sources of the information – insiders at Dell and Nvidia. Neither defendant was alleged to have had direct … Read more


The Newman-Chiasson Insider Trading Case Reinforces the Need for Change

The recent reversal of convictions of hedge fund managers Todd Newman and Anthony Chiasson highlights the weakness of using a common law approach when interpreting Rule 10b-5 to reach remote tippees accused of insider trading. The decision reinforces the need for a statutory approach to bar insider trading. A statutory approach is not a novel idea. Most jurisdictions around the world, including the UK and the other member states of the EU, have made insider trading a statutory offense that captures a wider range of conduct than does the US regime in its reliance upon Rule 10b-5. However, the introduction … Read more

Don Langevoort Headshot

Newman and Selective Disclosure

If someone had asked me back in the mid-1980s whether an insider trading case required proof that the tippee was aware that the tipper was acting for personal gain, I would have said yes without much hesitation, because that’s what the Supreme Court had said in Dirks. To be sure, awareness has a great deal of elasticity, because Dirks used the phrase “knows or should know,” and personal benefit can come in a variety of soft forms. But one big implication from this common understanding was that selective disclosure to investment analysts would ordinarily not constitute insider tipping, because … Read more

Ilya Beylin Headshot (small)

Why Newman Leaves Me With a Queasy Feeling, or Deregulating the Demand for Insider Information

Among several independent holdings stated by the court on its way to reversing the convictions of Todd Newman and Anthony Chiasson, the Newman court declared that: “in order to sustain a conviction for insider trading [against a remote tippee], the Government must prove beyond a reasonable doubt that [the remote] tippee knew that an insider disclosed confidential information and that he did so in exchange for a personal benefit.”[1] My musings leave aside whether from a doctrinal standpoint, this statement is incorrect, within a range of holdings that the court could have come to, or simply necessitated by the … Read more

Samuel Buell Headshot

Insider Trading Law in Deeper Waters

Everyone can thank Preet Bharara for one thing. His swath of insider trading prosecutions is forcing amplification of the law, especially the criminal law of insider trading. That body of law has been underdeveloped and at times stagnant. The Second Circuit’s important decision in United States v. Newman, however, shows that the common law process doesn’t necessarily lead to calmer waters.

Part of this is inevitable. The law of insider trading never had the intellectual heft to withstand sustained pressure in the form of large numbers of criminal prosecutions, which place special demands on the law because of their … Read more

John Coffee Headshot

IGNORANCE IS NOW BLISS: But What Can the Government Do?

United States. v. Newman[1] represents the most serious defeat for the DOJ and the SEC in their campaign against insider trading since Dirks v. SEC[2] in 1983. In both cases, mistakes were made, and the Government did not at the time appreciate the difficulty of its position. Indeed, in Dirks, the SEC sued the hero of the Equity Funding scandal (Ray Dirks), not the villain. In Newman, the U.S. Attorney was prosecuting far more remote tippees than those in any other Second Circuit case. If the Government were to seek certiorari and take this case to … Read more

Jim Cox Headshot

Giving Tippers a Pass: U.S. v. Newman

The Second Circuit, in U.S. v. Newman raises likely insurmountable burdens for prosecutors to pursue remote tippees. Newman causes even greater harm to the public interest in fair capital markets by making it impossible to pursue the true violator, the tipper. To understand this conclusion, consider the following hypothetical that is intended to illustrate the Supreme Court’s reasoning in Dirks v. Securities and Exchange Commission.

Kenneth Darke, a geologist with Texas Gulf Sulphur Company, rode into history as one of a large group of corporate insiders who purchased TGS shares on their advance knowledge of a unparalleled visual assay … Read more

John Coffee Headshot

Federal Preemption and Fee-Shifting

All eyes are on Delaware, where soon the Delaware Bar Association will recommend to the state legislature whether or not to curb the Delaware Supreme Court’s decision last year to uphold the facial validity of a board-approved bylaw that shifted the attorneys’ fees of defendants to the unsuccessful (or less than completely successful) plaintiff. Much commentary has already focused on the merits of that decision, ATP Tours, Inc. v. Deutscher Tennis Bund,[1] and this column will not go there. That furrow has already been well plowed.[2]

Although this columnist agrees with the majority who believe the ATP Read more

BCG discusses the “Brave New Era” of Comprehensively Regulated Banks

Global banking has entered a new era in which every region, product, and legal entity is going to be closely regulated.

To assess the current status and future effects of regulatory reform, we have classified the entire spectrum of regulatory reforms, grouping them into three clusters: financial stability, prudent operations, and resolution and separation. (See Exhibit 1.)

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Financial Stability: Expectations Exceed Regulators’ Intent

Since the crisis began, establishing and safeguarding global and local financial stability have been regulators’ highest priorities. As a result, financial stability is the most developed area of reform. Fundamental requirements have been revised or reinstated, primarily … Read more


Just How Scary is the Fed?

“There is an old saw that the Fed chair is the second most powerful person in government. In the aftermath of the financial crisis, that may actually be an understatement.” Nicholas Lemann, The New Yorker:

America has a long and conflicted relationship with central banking. The controversial actions taken by the Federal Reserve during and since the 2007-2009 financial crisis reignited longstanding concerns about vesting so much authority in the hands of a few unelected officials. The Fed’s creative and aggressive use of its authority likely helped to reduce the size of the financial crisis and the magnitude of … Read more

sarah paterson

Rethinking the Role of the Law of Corporate Distress in the Twenty-First Century

Thomas Jackson famously described the role of all bankruptcy law as reducing the incentive for individual enforcement against the assets of a distressed company.[1] Although scholars have debated other aspects of Jackson’s thesis, most have continued to identify with this as a central tenet of bankruptcy law. In a recent working paper, Rethinking the Role of the Law of Corporate Distress in the Twenty-First Century, I propose a new taxonomy: the law of corporate distress comprised of insolvency law and restructuring law. I suggest that Thomas Jackson’s description remains apt for part of that taxonomy but draw a distinction … Read more

Darian Ibrahim

Equity Crowdfunding: A Market for Lemons?

In the paper “Equity Crowdfunding: A Market for Lemons?”, recently made publicly available on SSRN, I take a comprehensive look at crowdfunding’s place in entrepreneurial finance. I begin by observing that angel investors and venture capitalists (VCs) have funded Google, Facebook, and virtually every technological success of the last thirty years, and that these investors operate in tight geographic networks which mitigates uncertainty, information asymmetry, and agency costs both pre- and post-investment. It follows, then, that a major concern with equity crowdfunding (the sale of securities over the Internet) is that the very thing touted about it – the democratization … Read more

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RMBS Put-Back Litigations and the Efficient Allocation of Endogenous Risk Over Time

In many cases pending around the country, purchasers of residential mortgage-backed securities (RMBSs) are suing the financial institutions that created and sold the RMBSs, alleging that representations and warranties made by these institutions concerning the quality of the underlying mortgage loans were false in various respects. Because the agreements memorializing the securitization transactions that created the RMBSs generally provide that, if a loan fails to conform to the seller’s representations, the seller will repurchase the loan at full value, these cases are generally referred to as the RMBS Put-Back Litigations. A key issue in many of these cases, including cases … Read more


How King v. Burwell Creates Tax Problems for Federal Health Insurance Exchanges and Consumers

In King v. Burwell, the Supreme Court will address whether Section 36B of the tax code grants a tax credit to persons who purchase health insurance policies on federally established health insurance exchanges.  The government says yes, but the challengers argue that tax credits are allowable only for consumers who purchase health insurance policies on state established exchanges. Commentators have expressed concern that the Court’s acceptance of the challenger’s argument would cripple the Obamacare legislation, whose success depends on robust consumer enrollment in health care plans. The RAND Corporation, for example, predicts that a government-adverse decision in King will … Read more

Seth Oranburg Headshot

How Twitter Is Disrupting Shareholder Activism

Shareholders are organizing and mobilizing on new social media platforms like Twitter. This changes the dynamics of shareholder proxy contests to favor small shareholders over management. Disruptive technology may bring about a shareholder revolution, which may not be in all shareholders’ best interests, at least from the perspective of shareholder wealth maximization, and it also has powerful implications for the future of corporate social responsibility.

Twitter and other social media are platforms for global social interaction. A twitter user can send a “tweet,” which is a sort of 140-character text message, to the world. About 500 million tweets are sent … Read more

Wendy Couture Photo

Burdens of Production and Persuasion on Price Impact After Halliburton II

The following post comes to us from Wendy Gerwick Couture, Associate Professor at the University of Idaho College of Law.  It is based on her recent paper entitled “Answering Halliburton II’s Unanswered Question: Burdens of Production and Persuasion on Price Impact,” which is forthcoming in the Securities Regulation Law Journal and is available here.

In Halliburton Co. v. Erica P. John Fund, Inc. (“Halliburton II”), 134 S. Ct. 2398, 2407 (2014), the Supreme Court held that a defendant can rebut the fraud-on-the-market presumption of reliance at class certification by showing the absence of price impact.  As Professor … Read more

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Matthias Lehmann Photo

Structural Reform of Banking Systems: The Global Impact of Legal Fragmentation

One of the key issues in the on-going overhaul of the global financial system is the structural reform of banking systems. Legislatures in different states, e.g. the United States, France, Germany, and the United Kingdom, have all taken measures to protect individual depositors’ assets against losses from risky bank activities. On 29 January 2014, the European Commission joined the transnational effort by publishing its own proposal on the subject. Each measure is slightly different. There are good reasons to wonder about the effect that this type of legal fragmentation will have on the global financial system. In a recent paper … Read more

Arthur J. Gallagher & Co. discusses Incentive Trends in Executive Compensation

With Say on Pay (“SOP”) now entrenched in the psyche of compensation committees along with Institutional Shareholder Services’ (“ISS”) evolving standards, improving disclosure of short- and long-term incentive (“STIP” and “LTIP”, respectively) plans, including measures used, the values associated with those measures, and how they can be expected to drive performance, should continue to be a priority for all public companies.

In order to review incentive trends (particularly, the underlying incentive design), Arthur J. Gallagher & Co.’s Human Resources & Compensation Consulting Practice has conducted a study of 2013 compensation data as disclosed in 2014 annual proxy statements for 200 … Read more

Commissioner Mark Wetjen

Ensuring the Promise of a Centrally Cleared, Global Swaps Market: Next Steps

These remarks were made by Commissioner Mark P. Wetjen before the Futures Industry Association Asia Derivatives Conference

Thank you for that kind introduction, and my thanks as well to the Futures Industry Association for having me here to speak at this year’s Asia Derivatives Conference. I am honored to be with you in Singapore. I want to give a special thanks to my good friend, Walt Lukken, who has shown tremendous leadership in his role at the FIA.

While traveling in Asia this week and meeting with members of the derivatives community, I’ve been struck by both the vastness and … Read more