Clifford Chance

U.S. Federal Appeals Court Reverses Insider Trading Convictions: Requires Proof of Tippee's Knowledge of Insider's Benefit and Makes it Harder for the Government to Charge Remote Tippees

11 December 2014

On Wednesday, December 10, 2014, a three-judge panel of the United States Court of Appeals for the Second Circuit in New York vacated the insider trading convictions of hedge fund managers Todd Newman and Anthony Chiasson, instructing the district court to dismiss all charges against them with prejudice. In this highly anticipated ruling, United States v. Newman, the Second Circuit, which has jurisdiction over the majority of the government's insider trading prosecutions, resolved the open legal question of whether the government must prove that a remote tippee knew that the insider who disclosed confidential information to the first tippee received a personal benefit for doing so.  The government bet against such a requirement, arguing that this element was not needed in the trial judge's jury instructions for Newman and Chiasson, as well as in several other high profile insider trading cases.  The Second Circuit decided against the government, holding that the government is required to prove this element of the tippee's knowledge to secure a conviction, and had not done so, necessitating dismissal.  More broadly, the Newman court's ruling makes it harder for the government to pursue claims against tippees who are removed from the initial prohibited information exchange.

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