“Personal benefit,” long considered the 97-pound weakling of insider trading defenses, is now looking much more muscular thanks to the Second Circuit’s ruling last month in United States v. Newman.1 Not surprisingly, federal prosecutors have already begun to explore ways of avoiding Newman’s reinvigorated personal benefit rule. Specifically, they have argued that Newman does not apply, and hence no personal benefit need be shown, when the government charges insider trading under (a) the “misappropriation” theory of liability or (b) the mail, wire or securities fraud statutes of Title 18 of the U.S. Code. This article assesses the viability of these two arguments.
Background
In Newman, portfolio managers Todd Newman and Anthony Chiasson appealed their convictions for insider trading in violation of Section 10(b) of the Securities Exchange Act and Rule 10b-5 promulgated thereunder. At trial, the government presented evidence that a cohort of analysts obtained unreleased quarterly earnings reports from insiders at Dell and NVIDIA, who then eventually communicated that information to the defendants. However, Newman and Chiasson were three or four steps removed from the original tippers, and the government put forth no evidence that either was aware of the source of the information.
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