Second Circuit Questions Use of Criminal Insider-Trading Statute Without Proof of Receipt of Personal Benefit | Corporate Defense and Disputes

The Second Circuit held yesterday that a government agency’s nonpublic, pre-decisional regulatory information does not constitute “property” for purposes of the federal insider-trading and wire-fraud statutes.  The decision in United States v. Blaszczak (2d Cir. Dec. 27, 2022) (“Blaszczak II”) effectively vacated convictions under those statutes for defendants who had traded on nonpublic, market-moving information that had been obtained from a government agency.

In a separate “concurrence” having potentially broader legal ramifications, two members of the panel also expressed concerns (in dicta) about the government’s use of the criminal insider-trading statute to prosecute tipper-tippee insider trading without needing to prove that the tipper received a “personal benefit,” as required under the federal securities laws.

The majority’s ruling on the use of nonpublic governmental information under insider-trading and wire-fraud statutes will likely not affect most insider-trading cases, which generally involve material nonpublic information (“MNPI”) obtained from nongovernmental sources. But the views expressed in the concurrence, if ultimately adopted by the courts or Congress, could shut down an approach that the government has been using to avoid the potentially complicated “personal benefit” issue, which has generated much litigation in recent years.

Source: Second Circuit Questions Use of Criminal Insider-Trading Statute Without Proof of Receipt of Personal Benefit | Corporate Defense and Disputes