On May 24, 2017, the U.S. Attorney's Office for the Southern District of New York (USAO) and the Securities Exchange Commission (SEC) announced parallel insider trading charges against a Washington, D.C.-based “political intelligence” consultant, the government employee who had been his alleged source of inside information, and three hedge fund analysts whom he tipped. One of the analysts pled guilty earlier in the month and is cooperating with the government.¹ The case marks the second time the government has brought insider trading charges against a “political intelligence” consultant. But the case is significant for another reason. An analysis of the alleged “benefit” to the tipper shows that there are notable similarities to facts in United States v. Newman, 773 F.3d 438 (2d Cir. 2014), which signals that the government is confident that the recent Supreme Court decision in Salman v. United States has overruled the Second Circuit's personal benefit holding in Newman in its entirety. On a practical note, the case also underscores the need for investment professionals who rely on political intelligence firms to monitor the source of the information they receive from those firms and to assess carefully any potentially material nonpublic information emanating from government agencies before trading.

The Benefit to the Tippers in 'Blaszczak' and 'Newman' Compared. The government alleged that David Blaszczak, a former employee at the Centers for Medicare & Medicaid Services (CMS) turned consultant for various “political intelligence” firms, obtained information from a former CMS colleague, Chris Worrall. Worrall, who had access to CMS's confidential deliberations about unannounced and potentially market-moving reimbursement decisions, allegedly divulged to Blaszczak that the CMS planned (1) to cut reimbursable treatment times for two cancer procedures, and (2) to cut reimbursement rates for various kidney dialysis treatments, services and drugs by 12 percent. Blaszczak, in turn, passed the information to the hedge fund analysts, who caused their hedge fund to sell short based on the information.

The indictment describes Worrall as a “close friend” of Blaszczak. Indictment ¶ 21. It alleges that “Worrall frequently discussed private-sector employment and other business opportunities” with him. Id. ¶22. Specifically, Blaszczak put Worrall in contact with another political intelligence consultant so that Worrall could interview for a private sector job with the consultant's firm. Id. Worrall commented to a family member that working for the consultant could be a “big opportunity” because of the consultant's “political links.” Id. Worrall did not take the job, but (according to the SEC complaint) nevertheless used the opportunity to leverage a promotion at CMS that included a $10,000 pay raise. Complaint ¶ 5. Another time, Blaszczak asked Worrall to become a “part owner” of a new political intelligence firm that Blaszczak was starting. Blaszczak told Worrall that he was on pace for “1.7 million total revenues for 2014″ and that if Worrall joined him, they would “kill it working together.” Indictment ¶ 22. Worrall responded, “You're like a drunk whore to me. Hard to resist. Lol. Let's talk.” Id. Finally, Blaszczak introduced Worrall to Senate staff members for purposes of professional networking, which Worrall appreciated. Id. ¶ 46.