Lower Bar for Criminal Insider Trading Charges

The Harvard Law School Forum on Corporate Governance and Financial Regulation 2020-01-23

Posted by Greg Andres, Angela Burgess, and Neil MacBride, Davis Polk & Wardwell LLP, on Thursday, January 23, 2020
Editor's Note: Greg Andres, Angela Burgess, and Neil MacBride are partners at Davis Polk & Wardwell LLP. This post is based on their Davis Polk memorandum. Related research from the Program on Corporate Governance includes Insider Trading Via the Corporation by Jesse Fried (discussed on the Forum here).

On December 30, 2019, the United States Court of Appeals for the Second Circuit affirmed the convictions of four individuals charged with disclosing and trading on nonpublic government information, adding a new twist to decades of judicial precedent on the definition of insider trading. See United States v. Blaszczak. [1] The court held that the “personal-benefit” test for insider trading established by the Supreme Court in Dirks v. SEC [2] does not apply to wire and securities fraud under Title 18 of the U.S. Code. Additionally, the court held that confidential government information constitutes “property” for the purposes of federal fraud statutes. The ruling will make it easier for the government to prosecute insider trading even when there is no clear benefit to the source who provided the information.