In United States v. Blaszcazk, the U.S. Court of Appeals for the Second Circuit reviewed the government's decision to seek dismissal of certain of defendant's insider trading convictions in light of the U.S. Supreme Court's 2020 decision in Kelly v. United States, 140 S. Ct. 1565 (2020), which narrowed the definition of "property" for purposes of certain federal criminal statutes. Circuit Judges Amalya Kearse and John Walker Jr. concluded, based on Kelly, that certain insider trading statutes are not violated by a scheme to misappropriate confidential government information that is regulatory in nature because the government has no property interest in that information. Circuit Judge Richard Sullivan issued a dissenting opinion.

Deciding 'Blaszcazk I'

United States v. Blaszcazk concerns two insider trading schemes. Both schemes stemmed from a Centers for Medicare & Medicaid Services (CMS) employee's disclosure to hedge fund consultants of contemplated rulemaking lowering certain Medicare reimbursement rates. The hedge fund consultants then used the information to successfully short companies negatively affected by the contemplated rulemaking. See United States v. Blaszczak, 947 F.3d 19, 27-28 (2d Cir. 2019) (Blaszcazk I). Defendants were charged with violating 18 U.S.C. §§641 (conversion), 1343 (federal wire fraud), 1348 (securities fraud), and Section 10(b) of the Securities and Exchange Act (Exchange Act), 15 U.S.C. §78j(b), and accompanying Securities and Exchange Commission (SEC) Rule 10b-5. After a four week-long trial before the U.S. District Court for the Southern District of New York, Defendants were found guilty of conversion, wire fraud, and (excepting one Defendant) securities fraud. Defendants were acquitted of the Section 10(b) and Rule 10b-5 charges.

On appeal to the Second Circuit, Defendants challenged their convictions for conversion under §641 and wire fraud under §1343 on grounds that they had not engaged in a scheme to defraud CMS of "property" because the agency had a "purely regulatory" interest in its confidential information, as opposed to a property interest. The Second Circuit disagreed and affirmed the convictions. Blaszcazk I, 947 F.3d, at 34. In doing so, the court determined that "property" (afforded the same meaning under both statutes) should be interpreted in line with its ordinary meaning—"something of value"—and the contemplated rulemaking was something of value to CMS. Id. at 31, 33.