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  • Second Circuit Amends Martoma And Reaffirms, But Arguably Still Weakens, Newman’s “Meaningfully Close Personal Relationship” Test In Insider Trading Cases Involving Tips
     
    07/03/2018


    On June 25, 2018, a divided three-judge panel of the Second Circuit amended its decision in United States v. Martoma. We previously reported on the facts of Martoma and the panel’s original decision, which held that the Supreme Court abrogated the “meaningfully close personal relationship” test articulated in United States v. Newman. See Shearman & Sterling LLP: Government/Regulatory Enforcement, Divided Second Circuit Panel Abandons Relationship Test From Landmark Newman Decision in Upholding Insider Trading Conviction (Aug. 29, 2017). The panel’s amended opinion, in contrast, holds that Newman’s “meaningfully close personal relationship” test is still valid for determining whether an insider tipper received a personal benefit (and thus breached a fiduciary duty), but also holds that the test will be satisfied upon a showing that (1) the “tipper and tippee shared a relationship suggesting a quid pro quo” or (2) “the tipper gifted confidential information with the intention to benefit the tippee.” United States v. Martoma, No. 14-3599, Dkt. No. 226 (2d Cir. June 25, 2018), at 5-6.

  • Seventh Circuit Upholds First Spoofing Conviction Against High-Frequency Trader
     
    08/15/2017

    On August 7, 2017, the Seventh Circuit upheld the conviction of Michael Coscia, founder of Panther Energy Trading LLC, for a market manipulation tactic known as “spoofing,” under Section 6c(a)(5)(C) and 13(a)(2) of the Commodity Exchange Act.  United States v. Coscia, No. 16-cr-3017 (7th Cir. Aug. 7, 2017).  Coscia’s conviction is the first of its kind under this statute, which was created by the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010 and prohibits “bidding or offering with the intent to cancel the bid or offer before execution.”  The Seventh Circuit rejected Coscia’s claim that the statute was unconstitutionally vague and found that Coscia’s conviction was supported by sufficient evidence. 

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  • DOJ And SEC File Parallel Criminal And Civil Insider Trading Charges Against Scientist Who Conducted Internet Searches On How To Avoid SEC Detection
     
    08/01/2017

    On July 12, 2017, both the Department of Justice (“DOJ”) and Securities and Exchange Commission (”SEC”) filed insider trading charges against a research scientist who allegedly traded upon confidential information obtained from his wife.  See Press Release, Manhattan U.S. Attorney And FBI Assistant Director Announce Insider Trading Charges Against Spouse Of Lawyer At International Law Firm, Rel. No. 17-213 (July 12, 2017), https://www.justice.gov/usao-sdny/pr/manhattan-us-attorney-and-fbi-assistant-director-announce-insider-trading-charges-0; Press Release, SEC Files Inside Trading Charges Against Research Scientist Aiming to Avoid SEC Detection, Rel. No. 2017-125 (July 12, 2017), https://www.sec.gov/news/press-release/2017-125.  The DOJ’s criminal complaint includes two securities fraud charges and one wire fraud charge, see United States v. Yan, 17-mag-5156 (July 12, 2017), while the SEC’s complaint charges violations of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Section 14(e) of the Exchange Act and Rule 14e-3 thereunder.  SEC v. Yan et al., 17-cv-05257 (S.D.N.Y. July 12, 2017).