In its December 10, 2015 decision in U.S. v. Newman, the Second Circuit held that in the context of an insider trading prosecution, a corporate insider commits no breach of fiduciary duty unless he receives a personal benefit in exchange for the information, and that a “tippee is liable only if he knows or should have known of the breach.” The Second Circuit also clarified that the government cannot prove a "personal benefit" by merely showing a personal relationship between the tipper and tippee. Rather, the government must show

proof of a meaningfully close personal relationship that generates an exchange that is objective, consequential, and represents at least a potential gain of a pecuniary or similarly valuable nature....   [T]his requires evidence of “a relationship between the insider and the recipient that suggests a quid pro quo from the latter, or an intention to benefit the [latter].” 

The Newman decision has quickly caused serious difficulties for both the DOJ and the SEC in their insider trading cases. Just last week, U.S. Judge Andrew L. Carter Jr. of the SDNY vacated the guilty pleas of four defendants charged with trading on inside information about I.B.M. based on the Newman decision, and Judge Carter was reportedly further considering whether to dismiss the charges altogether. On December 16, the SEC dropped an existing insider trading case against Jordan Peixoto in which the tipper appeared to receive no benefit, as required by Newman.

On Friday, January 23, the DOJ filed a "Petition for Panel Rehearing and Rehearing En Banc" in the Newman case, arguing that "the Opinion breaks with Supreme Court and Second Circuit precedent, conflicts with the decisions of other circuits, and threatens the effective enforcement of the securities laws." Among other things, the DOJ argued that Newman's definition of the “personal benefit” requirement conflicted with other Circuit court decisions as well as other Second Circuit decisions. 

Also on January 23, the SEC filed an amicus curiae brief in the Newman case supporting the DOJ's petition for a rehearing. The SEC stated in its brief that Newman's ruling that "evidence of friendship between an insider who tips and his tippee is insufficient to support an inference that the insider derived a personal benefit from the tipping ... is directly at odds with Supreme Court and prior Second Circuit decisions..."

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