As discussed here, in April 2015 the Second Circuit rejected the DOJ's petition for a rehearing in the landmark U.S. v. Newman insider trading case that has caused so much disruption to both the DOJ and the SEC. Facing a looming August 3 deadline to appeal the Second Circuit's opinion, the United States today filed a petition for a writ of certiorari with the U.S Supreme Court, asking that court to hear the case.
In its petition, the U.S. argued that the Second Circuit's "unprecedented ruling" reinterpreted the Supreme Court's prior decision in Dirks v. SEC that an an insider personally benefits when he “makes a gift of confidential information to a trading relative or friend.” Newman changed this standard dramatically, and erroneously, the U.S. argued, by instead requiring “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.” The U.S. added that
The effect of the new requirement will be to hurt market participants, disadvantage scrupulous market analysts, and impair the government’s ability to protect the fairness and integrity of the securities markets.
The U.S. argued that the Second Circuit's opinion requiring an "exchange" to show that a tipper personally benefited (and therefore may have violated the insider trading laws) conflicts with the holding in Dirks that a tipper's mere “gift” of inside information can be sufficient for liability:
But such an “exchange” is, by definition, not the same thing as a “gift”; rather, it is a quid pro quo, “something for something.” If the personal-benefit test cannot be met by a gift-giver unless an “exchange” takes place, then Dirks’s two categories of personal benefit are collapsed into one— and the entire “gift” discussion in Dirks becomes superfluous. (citations omitted).
The U.S. also noted that the Second Circuit's view of what constitutes a "personal benefit" under Dirks also conflicts with decisions by the Ninth and Seventh Circuits "that have faithfully applied the personal-benefit standard set forth in Dirks."