In a previous post I noted that United States v. Martoma can be read as an attempt to eliminate the personal benefit standard. By holding “that an insider or tipper personally benefits from a disclosure of inside information whenever the information was disclosed ‘with the expectation that [the recipient] would trade on it,’ Salman, 137 S. Ct. at 428, and the disclosure ‘resemble[s] trading by the insider followed by a gift of the profits to the recipient,’ id. at 427 (quoting Dirks, 463 U.S. at 664), whether or not there was a ‘meaningfully close personal relationship’ between the tipper and tippee” the Second Circuit potentially changed the face of insider trading. The aforementioned can be said to cover all intentional transmission of material nonpublic information because what is a gift other than giving something of value to another person. Thus, the Second Circuit has effectively replaced personal benefit with the tipper’s expectation that a recipient will trade. This is a huge change to the insider trading landscape. If true, it arguably reads fraud out of law that sounds in fraud. Continue reading
Since the Second Circuit came out with its decision in United States v. Martoma I have been asked many questions about it. I am sorry to say that the answer to pretty much all of them is: “I don’t know.” I hate that answer, by the way, but it is what it is.
People have asked: Why did the Second Circuit do this? Did the panel mean to go as far as it seems they went? Does this mean there is no such thing as personal benefit? Was Newman really just a personal shot at the over reach of former US Attorney Preet Bharara? Will the Second Circuit take this en banc? Will SCOTUS hear another insider trading case so soon after United States v. Salman? Answer: I don’t know. Continue reading
by Gregory Morvillo
This is the time of year for sequels. June rolls around and the summer movie slate starts to hit local theatres. Guardians of the Galaxy, Vol 2. This year, sequels are the big thing: everything from the second Guardians of the Galaxy, to the fourth Pirates of the Caribbean film, to the umpteenth Alien movie and more. Tis the season … for sequels.
With that in mind, I thought I’d do my own sequel. Back in February, I wrote a blog piece on the state of the law as it relates to the litigation over SEC Administrative Law Judges. As, I’m sure you know, all good sequels recap the previous incarnation without belaboring the point so here goes: a circuit split is brewing. In Lucia v SEC, the D.C. Circuit held that SEC ALJs are not inferior officers and do need not be constitutionally appointed. Thereafter, the Tenth Circuit, took the exact opposite position in Bandimere v. SEC. ALJ’s are inferior officers under Article III and if not appointed by the head of a department, are unconstitutionally presiding over cases before them. While it is not as exciting as seeing an old Luke Skywalker at the end of Star Wars: The Force Awakens, it is, in fact, where we left off in February.
Another rule about sequels is that to be any good something new has to happen. Staying true to my theme here, that means something must be new in the fight over the constitutionality of the administrative law process? The new here are dueling petitions for re hearing en banc in both the D.C. and Tenth Circuits. In the most basic terms, it means that the loser in both appeals wanted a sequel of their own on the appellate level; before proceeding to the Supremes. Continue reading
I find it fascinating when two people look at the same thing and come to completely different conclusions about it. OK … maybe fascinating is too strong a word, but it is interesting that two people can see the exact same thing and disagree on what it means. One might look at an impressionist painting and say “it’s a masterpiece” while another says “it’s garbage.” One might read a book and believe it inspired them and another might say it inspired them to vomit. And on it goes. Mostly, I think these things boil down to personal preference, emotional connection, and other subjective ways of evaluating things.
But what about something that should be devoid of subjective viewpoints and emotional connections? For example, what about caselaw? Surely, judges, particularly circuit court judges, try to view things dispassionately and objectively. And yet, we still have circuit splits. Some of this can be explained if there is no definitive interpretation of a law floating around. But what about when the Supreme Court has spoken on an issue? In that case, no circuit split should exist. And yet, it happens.
One such issue is important to those who find themselves in front of one of the SEC’s administrative law judges (“ALJ”). Now, before we go on, I must disclose that I find the whole ALJ process at the SEC to be one-sided and unfair. The number of wins the SEC has on its home-court makes them harder to beat than the New England Patriots. The fact that the Commission, the same entity, that made the decision to charge a defendant, is the same body that hears the initial appeal feels patently unfair. Continue reading
In 1857 a United States newspaper announced Mark Twain’s death and printed his obituary. When Twain learned of his passing, legend has it he quipped “Reports of my death have been greatly exaggerated.” Twain’s supposed quote applies with equal force to the reports floating around the legal community that United States v. Newman met an untimely demise this week. In both cases, contrary to what some people thought, Twain and Newman at the time of their reported deaths remained very much alive.
Last week the Supreme Court handed down a unanimous opinion in United States v. Salman. It was a highly anticipated opinion by those of us who follow the evolution of insider trading law … and yes I recognize that following insider trading law is, at the least, a little bit geeky. Nevertheless, many observers eagerly awaited the Supreme Court’s ruling. As it turned out, the ruling was kind of a dud. Continue reading
Michael Buffer has been a ring announcer at boxing and wrestling matches for over 30 years. During the early part of this century, he made a certain phrase very, very popular with sports enthusiasts. Before any major boxing or wrestling event he stood in the center of the ring, wearing a tuxedo and bow tie, and bellowed his catch-phrase to the delight of the crowd. Because I doubt very much Chief Justice Roberts will start the October 5, 2016 argument in a similar fashion, even though it would be most fitting, I will borrow Mr. Buffer’s saying for this blog post. What constitutes personal benefit in insider trading cases is the title fight on Wednesday’s slate of SCOTUS bouts. Ladies and gentlemen … “Let’s get ready to rumble!” Continue reading
There are two events driving and linking this post. First, the Supreme Court will hear argument in United States v. Salman within the next few weeks, and second, the start of football season. Although these events don’t seem to go together, they do here. In the wake of United States v. Newman (a precipitating factor in Salman making it to the High Court) the government seems to be employing an end run around the Newman Case.
For those non-football junkies out there, the end run is a play where the offense tries to get the defense to move one way, while the runner is moving in the opposite direction to evade the defense. In its most basic form an end run is an attempt to circumvent. Continue reading
I have a confession to make. I have come to the conclusion that the notion that an accused citizen is innocent until proven guilty is a concept in name only, and is not something people really, truly believe. I fear it has gone the way of proverbs like “an apple a day keeps the doctor away” and “the way to a man’s heart is through his stomach” old-fashioned adages not accepted as true in the modern world.
As you all know, the notion of innocent until proven guilty is, of course, explicitly in the United States Constitution, right? Not so much. Continue reading
In the wake of United States v. Newman, there were many opinions about the future of insider trading prosecutions. Some decried the decision as giving a pass to Wall Street insiders. Others considered it a rebalancing of the scales of justice to hold the government to a burden set out some 30 years ago in Dirks v. SEC. Regardless of which side one finds oneself on, I am reminded of the adage: the more things change, the more they stay the same. Why? Because what was old is new again.
How can it be, with so many legal experts taking the position that things have changed one way or the other, that things are actually “the same”? Continue reading
Should the Securities and Exchange Commission regulate based on the law or its view of what is ethical? Before May 20, 2016, the answer was the law, but to paraphrase Bob Dylan “the times [may be] a changing.”
Last week, the SEC charged William Walters and Thomas Davis with insider trading related to Dean Foods. Standing alone this may or may not be newsworthy. But throw professional golfer Phil Mickelson into the mix and the internet and news outlets were all abuzz.
In my opinion, commentators have focused on the wrong aspect of the SEC’s complaint. It is not the fact that the SEC named Mickelson in the complaint that should catch our collective attention. Nor the fact that the professional golfer was named only as a relief defendant. It is paragraphs 95 and 96 of the complaint that are truly newsworthy. In these paragraphs the SEC alleged that Mickelson should have to disgorge the profit from his stock purchase even though the complaint does not allege that he committed insider trading. Yes, you read that right. Continue reading