In the closely followed case of United States v. Stewart, the U.S. Attorney’s Office for the Southern District brought its first insider trading case to trial since the Second Circuit’s landmark decision in United States v. Newman, which increased the burden on prosecutors in tipper/tippee insider trading cases. Newman held that the government must prove that a tipper received a “personal benefit” by disclosing confidential information to a tippee, that the benefit cannot be established by the mere fact that the tipper and tippee are friends, and that the tippee must know of the benefit to the tipper.1 These requirements come into play most strongly when the government prosecutes tippees who are one or more steps removed from the original source of the inside information because such “remote tippees” may know little or nothing about the original tipper, including why the information was disclosed and whether a personal benefit was involved.
The Supreme Court has granted review of a Ninth Circuit insider trading case involving a remote tippee, suggesting that the court will clarify Newman’s personal benefit standard. While we await that decision, the Stewart case is an important reminder that Newman has not changed all that much in a significant category of insider trading cases: tipper/tippee cases involving family members. In this article, we discuss the Stewart case and suggest how the government was able to secure a conviction against the tipper, a son who tipped his father, even though the son received no meaningful financial benefit in return.
‘United States v. Stewart’
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