Publications

(Article from Securities Law Alert, Year in Review 2017) 

For more information, please visit the Securities Law Alert Resource Center

First Circuit: Country Club Member Expected to Receive a “Personal Benefit” for Tipping a Fellow Club Member

On February 24, 2017, the First Circuit affirmed the insider trading conviction of a country club member (the “tippee”) who received a tip about an upcoming bank acquisition from a fellow country club member. United States v. Bray, 853 F.3d 18 (1st Cir. 2017). The court found that evidence of a friendship between the tipper and the tippee, together with the tipper’s testimony that he believed the tip would enhance his reputation with the tippee, provided a reasonable basis for the jury to conclude that the tipper expected to receive a “personal benefit” for his tip as required under the Supreme Court’s decision in Dirks v. SEC, 463 U.S. 646 (1983).

Second Circuit: Supreme Court’s Decision in Salman Abrogated Newman’s “Meaningfully Close Personal Relationship” Test for Tipping Liability 

On August 23, 2017, the Second Circuit held that the “meaningfully close personal relationship” test established in United States v. Newman, 773 F.3d 438 (2d Cir. 2014)[1] for the personal benefit requirement for tipping liability “is no longer good law” in view of the Supreme Court’s decision in Salman v. United States, 137 S. Ct. 420 (2016).[2] United States v. Martoma, 869 F.3d 58 (2d Cir. 2017).

“[I]n light of Salman,” the Martoma court held that “an insider or tipper personally benefits from a disclosure of inside information whenever the information was disclosed ‘with the expectation that the recipient’ would trade on it, and the disclosure resembles trading by the insider followed by a gift of the profits to the recipient, whether or not there was a ‘meaningfully close personal relationship’ between the tipper and the tippee.”

[1] Please click here to read our prior discussion of the Second Circuit’s decision in Newman.