The Second Circuit Raises the Bar for Government Insider Trading Prosecutions

On December 10, 2014, the U.S. Court of Appeals for the Second Circuit issued a much publicized decision, reversing two high-profile insider trading convictions in the Southern District of New York. In issuing its decision in United States v. Todd Newman & Anthony Chiasson, No. 13-1837, the court reaffirmed important limitations on the scope of insider trading liability under the federal securities laws—specifically making it more difficult for the government to bring insider trading liability charges against traders who are several levels removed from the corporate insider who was the original source of the information. While this holding is limited to the Second Circuit, the decision is a positive development for defendants and potential targets in all circuits, as well as the financial industry, among other industries. The impact of this ruling is already being felt—defendants and judges are requiring prosecutors to reevaluate their cases in light of this ruling. Overall, the Newman decision stands for the following: