Insider Trading After Martoma: Benefits Without Friends?

By Nathan Bull, Kyle DeYoung, Todd Blanche, Lex Urban and Robert Duncan (September 18, 2017, 1:33 PM EDT) -- In United States v. Martoma,[1] the Second Circuit appeared to upend insider trading law by holding that criminal insider trading liability may arise from a tipper's "gift" of material, nonpublic information ("MNPI") to a tippee that the tipper "expects will trade on the information," whether or not there was a close personal relationship between the tipper and tippee.[2] The decision potentially expands the category of persons that, upon the disclosure of confidential information without pecuniary or tangible benefit, may constitute tippers or tippees subject to insider trading liability in the Second Circuit. Indeed, the court made clear that liability for "gifted" information may now extend beyond friends and family to far less substantial relationships, including tenants and doormen or even acquaintances.[3] Though the decision rejected the more stringent standard set forth by the Second Circuit just three years ago in United States v. Newman,[4] which required a "meaningfully close personal relationship" for criminal liability, it is too soon to portend a sea change in tipping liability until district courts navigate the Martoma court's reassurance that a close relationship may still be "relevant," if not required, in a determination of culpability....

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