Partner Jimmy Fokas and Associate Yulia Fradkin co-authored an article published in the May 28, 2015, issue of Westlaw Journal: Securities Litigation & Regulation. The article, titled “2nd Circuit Slams the Door on ‘Soft Benefit’ Insider Trading: Will Congress Pry It Back Open?,” analyzes the impact of United States v. Newman.
In a late 2014 ruling, the Court of Appeals for the Second Circuit held that the government failed to prove that downstream tippee defendants knew that an insider disclosed confidential information in exchange for a personal benefit, thus narrowing the scope of tippee liability for insider trading.
Fokas and Fradkin analyze the Newman decision and discuss the possibility that Congress will pass legislation that specifically defines and prohibits insider trading and conclude:
Sophisticated market participants should document the basis for their trading decisions whenever possible to avoid potentially damaging scrutiny by prosecutors or the SEC.
Newman may have limited the scope of insider trading liability, but the government scrutiny and aggressive pursuit of insider traders will continue regardless of whether the holding in Newman is replaced by statute or overruled by the Supreme Court.
Read the article.