The highly publicized Galleon insider trading case has brought to the forefront questions about liability in insider trading cases. Robert Moffat, an executive at IBM, allegedly disclosed material, nonpublic information to Danielle Chiesi of New Castle Partners hedge fund, and she allegedly traded on the basis of that information. Both were arrested on that basis, and Mr. Moffat has since pleaded guilty to insider trading charges and received a six-month prison sentence. But immediately following Mr. Moffat’s and Ms. Chiesi’s arrests last October, their lawyers each asserted that neither could be held liable, in part because Mr. Moffat never received a personal benefit in exchange for the information he conveyed. Ms. Chiesi’s lawyer commented that the complaint failed to allege that she gave anything of value to Mr. Moffat, while Mr. Moffat’s lawyer noted that “the government didn’t allege he profited” from the disclosure.1

This article examines insider trading law through the lens of a hypothetical scenario. The discussion focuses on the personal benefit test, which is designed to ensure that insider trading laws ensnare only the culpable: those who seek to use inside information for their personal advantage. While courts have diluted the personal benefit requirement over the years, limiting the ability to distinguish malevolence from carelessness in the eyes of the law, the negligent or “accidental” tipper should still be able to avoid liability for insider trading.

The Story of Lucy and Rita

This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.

To view this content, please continue to their sites.

Not a Lexis Subscriber?
Subscribe Now

Not a Bloomberg Law Subscriber?
Subscribe Now

Why am I seeing this?

LexisNexis® and Bloomberg Law are third party online distributors of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® and Bloomberg Law customers are able to access and use ALM's content, including content from the National Law Journal, The American Lawyer, Legaltech News, The New York Law Journal, and Corporate Counsel, as well as other sources of legal information.

For questions call 1-877-256-2472 or contact us at [email protected]