We explore below the impact of Newman on tips to friends, a common scenario in insider trading prosecutions. We also look at how lower courts have reacted to Newman and have already rejected the SEC’s argument that Newman does not apply to insider trading cases brought under the misappropriation theory. We conclude that the government will not be able to meet its burden, either in criminal or civil cases and under either the classical insider trading theory or the misappropriation theory, unless it shows a substantial quid pro quo—that the tipper benefitted from the tip in a concrete, consequential way and the tippee knew (or, in a civil case, at least should have known) of the personal benefit to the tipper. At least in the Second Circuit,the government’s argument that a mere tip to a friend violates insider trading law is dead on arrival.
‘Enforcement 40’ for 2020
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