Serving as the home of Wall Street, the New York Stock Exchange and several successful investment firms; New York City is widely considered the country’s financial epicenter. Given this title, it’s no surprise that the state’s U.S. Court of Appeals has been referred to by Supreme Court Justice Harry Blackmun as the “‘Mother Court’ for securities law.”
Given the significant role New York’s Court of Appeals plays in shaping securities trading laws and regulations, many are concerned by the court’s ruling in a recent securities fraud case. The case, which is widely referred to as the Newman decision, revolved around the actions of securities portfolio manager, Todd Newman and investment firm co-founder, Anthony Chiasson.
According to court documents, in 2012, the two men were convicted on charges of securities fraud related to their involvement in an insider trading scheme which netted Newman $3.8 million and Chiasson, roughly $68 million. The two men’s involvement in insider trading activities also resulted in Newman being sentenced to serve three-and-a-half years in prison and Chiasson, six-and-a-half years.
Upon appeal, defense attorneys for the two men argued that neither had knowledge that “the tipsters benefited from passing on information.” The court ruled in favor of the two men, throwing out their convictions and intensifying worries of an emerging slippery slope in securities law with regard to insider trading.
Based on the court’s decision, prosecutors must be able to prove that an individual who is accused of securities fraud “knew their tip came from someone who breached a duty to keep it secret.” Additionally, prosecutors must also prove that the tipper received “a personal benefit of ‘some consequence’,” which excludes simple friendship.
It’s not yet clear whether the government will seek weigh-in from the U.S. Supreme Court concerning the New York Court of Appeals’ ruling. If the current ruling is allowed to stand, there are fears that cases of insider trading will become more common and that such cases will also likely be more difficult to successfully prosecute.
Source: Indianapolis Business Journal, “Clock ticking for decision on landmark insider-trading ruling,” Bloomberg News, July 27, 2015