Today, in a ruling that may have significant consequences, the Second Circuit rejected the DOJ's petition for a rehearing in the landmark U.S. v. Newman insider trading case. The DOJ filed a "Petition for Panel Rehearing and Rehearing En Banc" in the Newman case on January 23, which was supported by an amicus curiae brief that same day by the SEC.
As I have chronicled here on several occasions, the Second Circuit's December 2014 decision in Newman has wreaked considerable havoc for both the DOJ and the SEC, resulting in numerous insider trading convictions being vacated and the dismissal of other cases. In their motions in favor of a rehearing, both the DOJ and SEC took aim at 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. This ruling was critical because in an insider trading case, the government must show a personal benefit to the insider in exchange for the information to prove that a breach of fiduciary duty occurred.
The court's order did not explain why it would not rehear the case, stating only that the "petition is denied." Steven Fishbein and John Nathanson, lawyers for Todd Newman, pointed out that none of the Second Circuit judges dissented from today's order. They added that the order "emphatically reaffirms that Todd Newman committed no crime... It is now time for the government to move on and allow an innocent man to continue with his life.”
The DOJ could elect to appeal the case to the Supreme Court, although it is unlikely that the Supreme Court would take the case. Another possible outcome is that the U.S. Congress will now focus on drafting legislation clearly defining insider trading. Following the Newman decision, three separate bills on this topic have now been introduced by Congress.