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Regulation White Collar Crime

Insider Trading Rules Still Not Clear

It has been nearly 60 years since the SEC first clearly prohibited insider trading. You would think that would be long enough for the doctrinal rules to have become reasonably clear. Think again!

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It has been nearly 60 years since the SEC first clearly prohibited insider trading in its 1961 decision in In re Cady, Roberts & Co. You would think that would be long enough for the doctrinal rules to have become reasonably clear. Think again! The recent evidence shows otherwise: A month ago, U.S. District Judge Paul Gardephe for the Southern District of New York permitted a defendant who had plead guilty to insider trading charges in 2013 to withdraw his guilty plea because there had been “insufficient” evidence that a personal benefit had been paid by the tippee to the tipper. See, United States v. Lee, 13-Cr.-00539 (PGG). Lee shows the continuing impact of United States v. Newman, 773 F.3d 438 (2d Cir. 2014). Newman had been limited by the Supreme Court in Salman v. United States, 137 S. Ct. 420 (2016) and seemingly laid to rest earlier this year by the Second Circuit’s decision in Gupta v. United States, 913 F.3d 81 (2d Cir. 2019). Nonetheless, Newman retains enough residual vitality to necessitate a new trial for Richard Lee, a former trader at now defunct SAC Capital. Pundits are predicting that the case will discourage the government from bringing cases involving remote tippees.

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