Second Circuit Upholds Title 18 Insider-Trading Conviction Where Title 15 Elements Not Established

The recent decision in United States v. Blaszczak may signal a change in how prosecutors in the Second Circuit, and perhaps in other jurisdictions, pursue insider-trading cases. United States v. Blaszczak, — F.3d —-, Nos. 18-2811, 18-2825, 18-2867, 18-2878, 2019 WL 7289753 (2d Cir. Dec. 30, 2019). In Blaszczak, the United States Court of Appeals for the Second Circuit held that insider-trading under Title 18 of the U.S. Code does not involve the same "personal benefit" test the Supreme Court applied to insider-trading under Title 15 in Dirks v. SEC, 463 U.S. 646 (1983). The Blaszczak decision arguably provides the government with an avenue to avoid the Supreme Court's ruling in Dirks and could embolden prosecutors to charge defendants more aggressively with insider trading under Title 18. But while Blaszczak relieves the government of the "personal benefit" test, prosecutors will likely still have to show a defendant defrauded a victim of "property" under 18 U.S.C. §1348. This "property" requirement, which does not apply to Title 15's insider-trading provisions, may continue to limit how aggressively the government employs Title 18 to prosecute such cases.

The Blaszczak Facts

David Blaszczak, a former employee at the Centers for Medicare & Medicaid Services (CMS) turned hedge fund consultant, obtained non-public, so-called predecisional information about anticipated rule changes from sources at CMS. Blaszczak tipped this information to traders at certain hedge funds who then traded on it before CMS publicly announced the rule changes.