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Time to Define InsiderTrading

By Jared Kopel
February 28, 2015

The average person probably believes it is illegal for a corporate insider to purchase or sell stock based on confidential information or provide the information to an outside trader. However, a bombshell ruling by an influential federal appeals court could make such conduct perfectly legal. The decision also emphasized the need for a statutory definition of insider trading.

In U.S. v. Newman, Nos. 13-1837, 13-1917 (Dec. 10, 2014), the Second Circuit Court of Appeals, which covers New York, Connecticut and Vermont, reversed the convictions of two hedge fund portfolio managers, Todd Newman and Anthony Chiasson, after a jury trial. The two men were charged with trading on behalf of their funds in the stocks of Dell Computer and NVIDIA based on confidential financial information divulged by employees at both companies. Newman was sentenced to 54 months in prison and required to pay over $1.7 million, while Chiasson was sentenced to 78 months in prison and required to pay almost $6.4 million.

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