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Government Enforcement Exposed - "The GEE"
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07 Dec 2016 U.S. Supreme Court Decides Salman, Reaffirms Broader View of Insider Trading

  Just like that, the Newman/Salman insider trading saga has come to a close. For now, at least. These cases have generated a good bit of ink on this blog. Yesterday, the U.S. Supreme Court unanimously decided United States v. Salman, affirming Salman’s conviction for insider trading, just two months after oral argument. The opinion, authored by Justice Samuel Alito, was not much of a surprise in what it decided, but was somewhat more interesting in what it did not address.   The Court concluded that Salman lay in the “heartland” of its prior prohibition in Dirks v. SEC. In Dirks, the Court said that a tipper breaches his or her fiduciary duty (and therefore commits insider trading) when the tipper either receives something of…

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06 Oct 2016 U.S. Supreme Court Revisits Insider Trading in Salman

  At long last, the U.S. Supreme Court heard oral argument yesterday in United States v. Salman. As readers of this blog know from prior posts, Salman is the first insider trading case the Supreme Court has taken in about 20 years and the most important one since Dirks in 1983. In the last two years, a split has developed in the circuit courts with regard to how to define insider trading – a task made more difficult because Congress has never defined what insider trading is, let alone expressly criminalized it.   The Supreme Court said in Dirks that, to have insider trading, the corporate insider must breach his or her fiduciary duty, which often means that the insider sought to, and did, receive…

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10 Mar 2016 Watch What You Write, Watch What You Say

  While market manipulation cases typically involve circumstantial evidence, prosecutors are finding more sophisticated ways to get defendants’ direct statements into evidence. In market fraud cases, government prosecutors are required to prove a defendant’s state of mind (the criminal intent component of a case). Historically, they have done so based on what the defendant did under specific circumstances—something referred to as “circumstantial evidence.” For example, an insider trading case may turn on the circumstance that a corporate insider had earnings information on the date she sold large quantities of corporate stock. Or, a market manipulation case may turn on the trades a defendant entered into after receiving a specific phone call.   Another significant component of such cases is the defendant’s own notes and comments….

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05 Oct 2015 REST IN PEACE, NEWMAN – SO WILL THE GOVERNMENT LAY DOWN IN SALMAN?

This morning, the U.S. Supreme Court finally put to an end to the government’s efforts to reverse the Second Circuit’s decision in United States v. Newman. As this blog predicted it might (August 11, 2015), the Supreme Court denied the government’s petition for writ of certiorari. As a result, the Second Circuit’s decision vacating the convictions of Newman and Chiasson stands. As is the court’s custom, it did not explain its decision.   As a result, if the government was not being hyperbolic in its petition for certiorari, the Second Circuit – home to most of the insider trading prosecutions in the country – has raised the bar for insider trading prosecutions higher than any other circuit in the country, created a standard that conflicts…

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28 Sep 2015 INSIDER TRADING AND ADMINISTRATIVE COURTS – MORE ON TWO HOT TOPICS THAT HAVE NOW CONVERGED

Since this blog began in January 2014, several topics have garnered substantial ink. These include: (1) the SEC’s apparent growing preference for litigating contested cases on their home turf, administratively, rather than in federal court. (June 19, 2014, July 10, 2014, May 26, 2015, May 22, 2015); and (2) the difficulties the government (both the SEC and DOJ) have encountered bringing insider trading cases and, in particular, the continuing saga of United States v. Newman, in which the DOJ’s petition for writ of certiorari is now pending before the United States Supreme Court. Both these issues continue to generate news, and they even converged recently.   SEC’s Administrative Law Courts   On the administrative court front, the SEC has been criticized repeatedly about the potential…

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11 Aug 2015 WHY NEWMAN MIGHT NOT BE HEADED TO THE SUPREME COURT

In the latest chapter of the United States v. Newman insider trading case, the Solicitor General recently filed its petition for writ of certiorari, asking the United States Supreme Court to hear the case. While the court is unlikely to decide on the government’s petition until the end of the year, the government’s petition may have actually diminished the chances that the Supreme Court will take the case.   As we have discussed previously, April 29, 2014; Dec. 23, 2014; and March 9, 2015, the Second Circuit held last year that an insider trading conviction requires that: (1) an insider tipper act for a “personal benefit” of financial consideration, or something at least akin to monetary gain; and (2) the remote tippee know that the…

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15 Jul 2015 NINTH CIRCUIT SLAPS BACK REMOTE TIPPEE’S NEWMAN DEFENSE

Last week, the Ninth Circuit, with opinion by Southern District of New York Judge Jed S. Rakoff, questioned how far remote tippee insider-trading defendants can stretch the Second Circuit’s Newman decision.   In United States v. Salman, the defendant appealed his conviction for conspiracy and insider trading, urging the court to find the evidence against him was insufficient under the Newman standard. The conviction arose from Salman’s trading on insider information through family connections. Salman’s future brother-in-law, Maher Kara, worked in a leading global bank’s healthcare investment banking group and shared insider information with his brother, Michael, who became Salman’s close friend and in turn shared that insider information with Salman. Michael urged Salman to “mirror-image” his trading, and Salman traded through a brokerage account…

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09 Mar 2015 “HELLO, NEWMAN” — GOVERNMENT CONTINUES TO LITIGATE REVERSED INSIDER TRADING CONVICTIONS

The U.S. Attorney for the Southern District of New York, Preet Bharara, has decided not to go down without a fight. Following a Second Circuit panel’s reversal of Bharara’s signature achievement, the insider-trading convictions of former hedge fund managers Todd Newman and Anthony Chiasson, the U.S. Attorney’s office has petitioned the court for rehearing and rehearing en banc. The Securities and Exchange Commission has also weighed in on the U.S. Attorney’s side, arguing in an amicus brief that the panel seriously erred in its decision. Meanwhile, in other cases, particularly outside the Second Circuit, the Justice Department, and the SEC have argued strenuously that the Second Circuit’s panel decision should not be followed.   In the Second Circuit, the battle lines are being drawn. Bharara’s…

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23 Dec 2014 CRIMINAL INSIDER TRADING CONVICTIONS OVERTURNED IN FAR-REACHING RULING

In a stunning reversal that threatens Southern District of New York U.S. Attorney Preet Bharara’s signature achievement, the Second Circuit recently reversed the insider-trading convictions of former hedge fund managers Todd Newman and Anthony Chiasson. Over the last seven years, Bharara’s office has secured more than 80 convictions for insider trading. Many of those may now be imperiled by the appellate court’s decision, which appears to substantially raise the bar for what most be proved in an insider trading case.   Newman and Chiasson were “remote tippees,” individuals who allegedly received material inside information indirectly, and often several steps removed, from corporate insiders. Remote tippees were part of Mr. Bharara’s effort to aggressively push the envelope with respect to who might be liable for insider…

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15 Jul 2014 The Acquittal of Rengan Rajaratnum: A Precursor for Acquittals or No Action in Other “Remote Tippee” Cases?

The recent acquittal in the trial of Rengan Rajaratnum may be a harbinger of good tidings for future insider trading defendants. A key issue in some recent insider trading prosecutions, including this one, is whether the government is required to prove that the defendant/tippee (who received the tip) knew about the benefits provided to the tipper (who provided the tip). In a traditional insider trading case, this knowledge requirement is typically not difficult to prove because the defendant usually directly provided the insider with the benefit. But in some recent stock-tipping cases, prosecutors have pursued “remote tippees:” individuals that received a tip but have at least one layer between them and the insider.   The question of whether the knowledge requirement should be applied to…

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