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 to Messrs. Newman and Chiasson among others.  The two were convicted at trial and appealed.  The Newman decision reversed the convictions, developing insider trading law along the way.  The reversal was based on two alleged sets of errors.  The first was an error in the jury instruction.   The Second Circuit held that the instruction was inadequate because it did not require a finding that the defendants had knowledge of the benefit transferred to the corporate insider who provided the relevant information from the initial tippee.  The second was that the “evidence was insufficient to sustain a guilty verdict” on two prongs of the insider trading analysis; specifically, there was insufficient evidence to find that (a) there was a personal benefit to the corporate insiders providing the tips, and (b) Messrs. Newman and Chiasson knew that they were trading on information obtained from insiders in violation of those insiders’ fiduciary duties.  In explaining the evidentiary errors, the Newman court held that “a personal benefit may be inferred from a personal relationship between the tipper and tippee” only in the presence “of a meaningfully close personal relationship that generates an exchange that is objective, consequential, and represents at least a potential gain of pecuniary or similarly valuable nature.”  Yesterday’s posts were from Professors Samuel Buell (Duke Law), John Coffee (Columbia Law) and Jim Cox (Duke Law), follow.  Today’s posts are from Professor Jill Fisch (Penn Law), Ed Greene and Olivia Schmid (Columbia Law and Cleary Gottlieb), Professor Don Langevoort (Georgetown Law),  and a few shrill wheezes from me.

In related news, the DOJ has petitioned for a rehearing of the case or a rehearing en banc, and the SEC is seeking to file an amicus brief supporting the motion.