The high court rebuff “cements that decision’s changes to the landscape of insider-trading law,” said John Zach, a former federal prosecutor who worked on the Newman and Chiasson case and is now a partner at Boies Schiller & Flexner. “With that increased benefit requirement now the law, an entire class of tippers who knowingly traffic in inside information are shielded from prosecution.”
The ruling has already prompted the dismissal of cases against five people, including four who had pleaded guilty. It undercut a crackdown that in 2012 won Bharara a spot on the cover of Time magazine under the headline, “This man is busting Wall Street.”
Nonpublic Information
Newman and Chiasson urged the Supreme Court not to take up the case, saying it was the Obama administration that was pushing for a sweeping change in the law. The administration “seems to advocate a rule that would bar trading based on any material nonpublic information -- a rule that this court has consistently repudiated,” Chiasson argued.
The Supreme Court has defined insider trading to encompass only those instances where a person violates a fiduciary duty to shareholders -- such as when an employee personally benefits from a leak of nonpublic information. In a 1980 case the Supreme Court rejected the idea of “a general duty between all participants in market transactions to forgo actions based on material, nonpublic information.”
The standards for insider trading are unclear in part because the 1934 law used for prosecutions doesn’t specifically mention the practice. Over the years, the Supreme Court has concluded that insider trading is a type of fraud, which is explicitly covered by the Depression-era statute.
The case is United States v. Newman, 15-137.