In December 2022 in United States v. Blaszczak, 56 F.4th 230 (2d Cir. 2022) (Blaszczak II) a Second Circuit panel issued a ruling vacating the court's controversial three-year-old decision in United States v. Blaszczak, 947 F.3d 19 (2d Cir. 2019) (Blaszczak I). In Blaszczak I the Second Circuit held that a government agency's confidential information can constitute "property" for purposes of federal criminal fraud statutes and that the "personal benefit" test announced by the Supreme Court for insider trading cases under Section 10(b) of the Securities Exchange Act does not apply to insider trading cases charged under the securities fraud provision in Title 18 (18 U.S.C. §1348). Illustrating the ever-shifting sands at the foundation of insider trading law, while defendants' certiorari petitions were pending in Blaszczak I, the Supreme Court issued Kelly v. United States, 140 S. Ct. 1565 (2020), and as predicted, the Supreme Court vacated the decision in Blaszczak I and remanded the case to a different panel of Second Circuit Judges—Judge John Walker replaced Judge Christopher Droney who retired days after issuance of the original opinion—for further consideration. See Robert J. Anello and Richard F. Albert, Days Seem Numbered for Circuit's Controversial Insider Trading Decision, NYLJ (Dec. 10, 2020).

On remand, in a familiar turn of events, Judge Amalya Kearse, writing for the majority, vacated defendants' convictions on the very ground of her dissent in Blaszczak I, leaving intact Blaszczak I's conclusion that Section 1348 does not require proof of personal benefit. A forceful concurrence by Judge Walker, joined by Judge Kearse, calls into question this second holding and cautions of the dire consequences for legitimate market activity. In recognition of the persistent doctrinal flux, Judge Walker calls on Congress and the courts to require the government to demonstrate proof of a personal benefit to secure a Section 1348 conviction. Given the procedural posture of the Blaszczak case and the lack of judicial precedent in other circuits, Judge Walker's insights add more mud to the already muddy waters of insider trading law in the Second Circuit and elsewhere.

The Friends With Benefits Requirement of Insider Trading Liability

The sense of whiplash that some may feel after the Blaszczak opinions is not a new phenomenon in insider trading law. Instead, the decision builds on the already unsteady foundation of a confusing array of cases. In the seminal decision Dirks v. SEC, 463 U.S. 646 (1983), the Supreme Court, drawing on the purpose of the Exchange Act, held that liability for insider trading requires proof that an individual—the "tipper"—disclosed material, nonpublic information in exchange for a "personal benefit." "[T]he test is whether the insider personally will benefit, directly or indirectly from his disclosure." The Court explained that what makes insider trading deceptive, and thus fraudulent, is a breach of a duty of trust and confidence to the source of information through use of the information for a "personal benefit." A recipient of insider information—a "tippee"—also can be liable for securities fraud where he or she, knowing that the inside information was disclosed in violation of the insider's duty, then trades based on that information. Since Dirks, the Second Circuit has attempted to clarify the scope of this test, in a back-and-forth dialogue with the Supreme Court that has led it to revise and circumscribe prior opinions. See, e.g., United States v. Newman, 773 F.3d 438, 447-49 (2d Cir. 2014), abrogated by Salman v. United States, 137 S. Ct. 420 (2016); United States v. Martoma, 869 F.3d 58 (2d Cir. 2017) rev'd, 894 F.3d 64 (2d Cir. 2018).