Second Circuit Reverses Insider Trading Convictions of Remote Tippees

On December 10, 2014, the United States Court of Appeals for the Second Circuit issued an important and much-anticipated decision that clarified certain aspects of insider trading law, especially with regard to tippees, and made clear its view that the Government had overreached in recent insider trading cases targeting remote tippees. In United States v. Newman and Chiasson, the Court held that in order to sustain an insider trading conviction against a tippee, the Government must prove that the tippee knew that a company insider had disclosed confidential information and that the insider did so in exchange for a personal benefit, in violation of the insider’s fiduciary duty. The court then went on to hold that the evidence against the defendants was insufficient in two respects. First, the Government had failed to prove that an insider had received a personal benefit. Second, the Government had failed to prove that the defendants knew that they were trading on information obtained from an insider in breach of the insider’s fiduciary duty. Because of those fundamental insufficiencies, the court not only reversed the convictions, but also dismissed the indictment.