Everything Is Insider Trading Again

2 min read Original article ↗

In order to convict someone of criminal insider trading, the government needs to prove not only that a corporate insider gave a tip of material nonpublic information to someone who traded on it; it also needs to prove that the insider got a "personal benefit" from tipping the trader. A traditional personal benefit is for the trader to hand the insider a sack of cash representing his cut of the trading profits, but courts and prosecutors have a long history of expanding the test to include squishier benefits. Maybe the insider got some job advice from the tippee, or the satisfaction of conferring a gift on his brother-in-law, or the even weaker satisfaction of looking cool in the eyes of a tippee he barely knew.

But then a few years ago the U.S. Court of Appeals for the Second Circuit, in its Newman decision, ruled: No, the personal-benefit test is a real thing, you have to get a real benefit. Or, if you gave the information without expecting anything in return, it needs to have been given in the context of a "meaningfully close personal relationship." The Supreme Court later narrowed that a bit, ruling in the Salman decision that giving inside information to your brother is obviously insider trading, but it didn't really overrule Newman. A gift of inside information "to family or friends" is insider trading; it's the equivalent of the insider trading in his own account, and then giving the proceeds to his brother as a gift. It's still a personal benefit to the insider, which is what makes it criminal: The insider is stealing corporate information to use for his own benefit.