
Dan Brecher
Counsel
212-286-0747 dbrecher@sh-law.comCounsel
212-286-0747 dbrecher@sh-law.comA three-judge panel of the U.S. Court of Appeals for the Second Circuit recently heard arguments on whether to reverse the convictions of two hedge fund managers.
Todd Newman, a portfolio manager at Diamondback Capital Management, and Anthony Chiasson, a co-founder of Level Global Investors, were convicted of insider trading. The two hedge fund managers made millions of dollars trading on inside information in Dell Computer and Nvidia. They knew that the information came from company employees who breached their obligations to their employers in exchange for “things of value.”
The managers’ attorney described them as “remote tippees,” meaning they did not receive the information from the original sources. However, the evidence showed they wanted assurance that the tips came from insiders in a position to provide reliable information. The tips proved to be worthwhile, as demonstrated by the shares moving when the information became public.
Newman and Chiasson’s appeal was based on the fact that the federal district court judge refused to instruct the jury that they could not be convicted unless they knew the employees leaking the information had received a benefit when they violated their duty to their companies by providing the information.
The appellate panel focused on the Supreme Court holdings that trading on inside information is legal unless it is obtained from an individual who violates a duty to keep it confidential and receives something of value in return for the information.
Judge Barrington D. Parker promoted the need for a “bright line” to enable hedge fund managers to know whether they were violating the law when they traded on inside information. In other words, proving the information came from an insider and the trader was aware of the source will be irrelevant if the trader did not know about the payoff.
This leads to the question of why a hedge fund manager would ever want to know about the payoff? As long as the tip is reliable, the rest doesn’t matter to him/her. Additionally, the standard for meeting the “something of value” requirement is extremely low. Even friendship has been deemed sufficient.
In short, if the court overturns the convictions of Mr. Newman and Mr. Chiasson, it will make it difficult for prosecutors to ever win convictions. The message to traders will be to never discuss or be aware of the payoffs to sources.
If you have any questions about insider trading or would like to discuss other corporate, securities and investment banking matters, please contact me or the Scarinci Hollenbeck attorney with whom you work.
No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.
Corporate transactions can have significant implications for a corporation and its stakeholders. For deals to be successful, companies must act strategically to maximize value and minimize risk. It is also important to fully understand the legal and financial ramifications of corporate transactions, both in the near and long term. Understanding Corporate Transactions The term “corporate […]
Author: Dan Brecher
Ongoing economic uncertainty is forcing many companies to make tough decisions, which includes lowering staff levels. The legal landscape on both the state and federal level also continues to evolve, especially with significant changes to the priorities of the Equal Employment Opportunity Commission (“EEOC”) under the Trump Administration. Terminating an employee is one of the […]
Author: Angela A. Turiano
While filing annual reports may seem like a nuisance, failing to do so can have significant ramifications. These include fines, reputational harm, and interruption of your business operations. In basic terms, “admin dissolution for annual report” means that a company is dissolved by the government. This happens because it failed to submit its annual report […]
Author: Dan Brecher
Antitrust laws are designed to ensure that businesses compete fairly. There are three federal antitrust laws that businesses must navigate. These include the Sherman Act, the Federal Trade Commission Act, and the Clayton Act. States also have their own antitrust regimes. These may vary from federal regulations. Understanding antitrust litigation helps businesses navigate these complex […]
Author: Robert E. Levy
If you’re considering closing your business, it’s crucial to understand that simply shutting your doors does not end your legal obligations. Unless you formally dissolve your business, it continues to exist in the eyes of the law—leaving you exposed to ongoing liabilities such as taxes, compliance violations, and potential lawsuits. Dissolving a business can seem […]
Author: Christopher D. Warren
Contrary to what many people think, corporate restructuring isn’t all doom and gloom. Revamping a company’s organizational structure, corporate hierarchy, or operations procedures can help keep your business competitive. This is particularly true during challenging times. Corporate restructuring plays a critical role in modern business strategy. It helps companies adapt quickly to market changes. Following […]
Author: Dan Brecher
No Aspect of the advertisement has been approved by the Supreme Court. Results may vary depending on your particular facts and legal circumstances.
Consider subscribing to our Firm Insights mailing list by clicking the button below so you can keep up to date with the firm`s latest articles covering various legal topics.
Stay informed and inspired with the latest updates, insights, and events from Scarinci Hollenbeck. Our resource library provides valuable content across a range of categories to keep you connected and ahead of the curve.
Let`s get in touch!
Sign up to get the latest from the Scarinci Hollenbeck, LLC attorneys!