As I noted here earlier this week, the Second Circuit's December 2014 decision in U.S. v. Newman is already causing serious difficulties for both the DOJ and the SEC in insider trading prosecutions. An early, and particularly dramatic, example of the impact Newman is having on insider trading cases is the Trent Martin case.

Two years ago, Martin, from Sydney, Australia, was the target of an extraordinary extradition effort carried out by federal prosecutors. In December 2012, prosecutors successfully requested and obtained Martin's arrest while he was in Hong Kong on U.S. charges of securities fraud and conspiracy to commit securities. U.S. prosecutors alleged that Martin learned non-public information about IBM's plans to acquire a company called SPSS Inc., and that he made about about $8,000 in illegal trading profits based on this information. 


According to the Australian Financial Review, Martin then spent three months in a Hong Kong jail with 90 other inmates during which time he was "temporarily admitted to a psychiatric ward after a prison guard mistook an exercise routine in solitary confinement for a suicide attempt." In March 2013, Martin was taken to the U.S., arrested for insider trading, and then released on bail. In September 2013, Martin pleaded guilty to the charge of conspiracy to commit securities fraud and his sentencing for up to five years in prison was set for April 2015. 


Then came last month's Newman decision. Because the lawyer who allegedly provided Martin and his co-defendants with inside information about IBM received no benefit in return as defined by Newman, prosecutors could no longer establish an insider trading case against Martin and the others. Accordingly, on January 22, 2015, U.S. Judge Andrew L. Carter Jr. of the SDNY vacated the guilty pleas of Martin and three other co-defendants. Yesterday, prosecutors announced that they were dropping all charges against Martin and his co-defendants rather than taking their now-flawed case to trial.


In short, the Newman case turned Trent Martin from an extradited, admitted insider trader awaiting a sentence of up to several years in prison into a free man.