Newman Opposes Petition for Certiorari, Relying on Merits of Second Circuit Opinion

The US Supreme Court has taken cert in a case raising issues first addressed in US v. Newman, 773 F.3d 438 (2d Cir. 2014).  See Salman v. United States, 15-628 (Jan. 19, 2016).  The Supreme Court accepted cert in Salman only after rejecting a petition filed by the US in Newman.  This post discusses one of the briefs filed in connection with the Newman cert petition. 

In Brief For Todd Newman In Opposition to the Petition for a Writ of Certiorari to the United States Court of Appeals for the Second Circuit, No. 15-137 (August 24, 2015) regarding United States v. Newman et al., Newman (“Defendant”) argued: (1) resolution of the question presented by the United States (“Plaintiff”) would not affect the outcome of the case as decided by the Second Circuit; (2) the Second Circuit’s decision did not conflict with the Supreme Court’s decision in Dirks v. SEC; (3) the Second Circuit’s decision did not create a circuit conflict; and (4) the Second Circuit’s decision would not undermine insider trader prosecution.

First, Defendant asserted Plaintiff’s question would not affect the Second Circuit’s ruling, because the Second Circuit’s central holding required a tippee to know the tipper received a personal benefit in order to find the tippee liable for insider trading. Here, Defendant argued Plaintiff’s reframed question on whether corporate insiders received a personal benefit from disclosing information to Defendant would not overturn the Second Circuit. Defendant maintained because knowledge of a personal benefit (“gift theory”) was still required, and gift theory was an issue decided by the lower courts and not on appeal.

Second, Defendant argued the Second Circuit’s decision was consistent with the Supreme Court’s ruling in Dirks v. SEC. According to Defendant, Dirks imposed insider trading liability for the gifting of information to a relative or friend. This required a close personal relationship between the tipper and the tippee. Defendant stated the Second Circuit’s reference to an impersonal relationship endorsed the Dirks ruling.

Third, Defendant asserted there was no circuit conflict. Plaintiff contended the Ninth Circuit issued an opinion demonstrating a conflict that required resolution by the Supreme Court. Defendant, however, maintained the Ninth Circuit opinion included a hypothetical that was outside the scope of Newman and further noted that both circuits agreed that a gift of information could result in insider trading.

Finally, Defendant stated the Second Circuit’s decision would not undermine insider trader prosecution. Plaintiff argued personal benefit to a relative or close friend would be impossible to prove under Newman, but Defendant’s assertions illustrated this particular type of personal benefit.

As such, Defendant’s primary assertion was: the issues on appeal, and any subsequent outcome, were insignificant.

The primary materials for this post can be found on the DU Corporate Governance website.