The question of what constitutes insider trading has been litigated for decades. While many thought that a series of Supreme Court cases such as Dirks v. SEC, 462 U.S. 646 (1983) and its progeny had largely resolved the question about the basic elements of the unlawful conduct, an action prosecuted under the federal wire fraud statute and an fraud statute created as part of the Sarbanes-Oxley Act suggested that perhaps proof of elements like the “personal benefits” test can be by-passed — a short-cut to insider trading lability. Blaszczak v. U.S., 947 F. 3rd 19 (2nd Cir. 2019).
Perhaps; but perhaps not. In a January 11, 2021, the Supreme Court granted a Petition for a Writ of Certiorari in Blaszczak v. U.S., No. 20-5649. In granting the writ the Court vacated the decision of the Second Circuit upholding convictions for insider trading based on the federal wire fraud and SOX fraud statue, and remanded the case to the Circuit court “for further consideration in light of Kelly v. United States . . .” 590 U.S. — (May 7, 2020).
Second Circuit decision –inside information is property
David Blaszcak, a political intelligence consultant employed by a hedge fund, was convicted by a jury based on a scheme which appeared to be insider trading. The charges trace to inside information transmitted by Christopher Wordell, an employee at Centers for Medicare and Medicaid Services or to his former co-worker, Defendant Blaszczak. The agency issues proposed and final rules that set the Medicare reimbursement rates. The releases often impact the share price of firms that offer products and services covered by the impacted fee changes. Accordingly, the rate changes are made after the close of the market.
Mr. Worrall had access to material non-public CMS decisions concerning reimbursement amounts under the applicable regulations...
