In the Courts

A three-judge panel of the U.S. Court of Appeals for the Second Circuit upheld the conviction of Mathew Martoma for insider trading and, in doing so, overruled part of United States v. Newman, 773 F.3d 438 (2d Cir. 2014), thereby removing one obstacle for prosecutions of insider trading. The 2-1 decision overruled the portion of the Newman decision that held that there must be a “meaningfully close personal relationship” to infer that the provider of insider information has received a benefit by providing that information to another to trade on, a requirement for a conviction on insider trading. Now, no such relationship must be proven in order for a jury to make an inference that a provider of nonpublic information received a benefit by tipping off another, making allegations for insider trading that much easier for the government to prove.

Martoma had been convicted of insider trading while he was a portfolio manager at SAC Capital Advisors LP (SAC), the firm founded by billionaire Steven A. Cohen, and was sentenced to nine years in prison. SAC, which once managed $14 billion, shut down in 2013 after it pled guilty to insider trading, and paid a $1.8 billion fine. Cohen is currently barred from trading client's money until 2018 by the SEC.