For years courts, prosecutors and SEC lawyers have twisted themselves into knots trying to figure out when those who leak insider information (“tippers”) benefit from the leak and thereby violate the securities laws based on the decision in Dirks v. S.E.C., 463 U.S. 646 (1983). Cases have run the gambit from insiders receiving bags of cash to cheating husbands getting the psychic benefit of knowing that their girlfriends were profiting on their tips. The Second Circuit has been one of the leading voices in the debate about the “personal benefit” element of the offense of insider trading, and it has just recently spoken again on the subject, ruling (with one judge dissenting) that the benefit need not be the result of a “meaningfully close personal relationship” between a tipper and someone (“a tippee”) who trades on the tipper’s leak.' In United States v. Martoma, No. 14-3599 (2d Cir. Aug. 23, 2017), the Second Circuit again addressed the intersection of insider trading and expert networks.
In this client alert RK&O attorneys David B. Massey, Lee S. Richards III and Paul J. Devlin explore the United States v. Martoma decision and what Martoma means for traders and their lawyers.