On Insider Trading, an Appeals Court Comes to Its Senses
- 7 years ago
On Insider Trading, an Appeals Court Comes to Its Senses
Robert A. Katzmann, the chief circuit judge who wrote the opinion for two of the judges on the panel (the third wrote a dissent), didn’t need to consider the nuances of the relationship
and how Dr. Gilman might have benefited (or suffered) emotionally, because the two had a straightforward financial relationship: Dr. Gilman earned hundreds of thousands of dollars in consulting fees from Mr. Martoma, and so he had every reason to ingratiate himself by divulging the information
But in Newman, the Second Circuit held prosecutors to a much higher standard, ruling
that the relationship must be “a meaningfully close personal relationship that generates an exchange that is objective, consequential, and represents at least a potential gain of a pecuniary or similarly valuable nature.”
That meant the traders who passed on and traded on inside information in the Newman case went free.
“In fact, it’s one of the easiest insider-trading cases I’ve ever seen.” While the appellate panel may have overreached in its eagerness to limit the damage from Newman, he said, the upshot is
that “the odds have again swung to the prosecutors’ advantage.”
Both the Newman and Martoma appeals turned on the relationship between the person who conveys inside information (the “tipper”)
and the person who receives and trades on it (“the tippee”).
That set the stage for Mr. Martoma to argue that he, likewise, had no close personal relationship with Dr. Gilman and
that the doctor didn’t reap any gain from disclosing the information.
Mr. Martoma is the former SAC Capital portfolio manager who was convicted of the biggest insider-trading offense in history, a series of trades based on confidential information
he coaxed from Dr. Sidney Gilman, an eminent neurologist at the University of Michigan who was overseeing tests of a promising drug for Alzheimer’s disease.
Robert A. Katzmann, the chief circuit judge who wrote the opinion for two of the judges on the panel (the third wrote a dissent), didn’t need to consider the nuances of the relationship
and how Dr. Gilman might have benefited (or suffered) emotionally, because the two had a straightforward financial relationship: Dr. Gilman earned hundreds of thousands of dollars in consulting fees from Mr. Martoma, and so he had every reason to ingratiate himself by divulging the information
But in Newman, the Second Circuit held prosecutors to a much higher standard, ruling
that the relationship must be “a meaningfully close personal relationship that generates an exchange that is objective, consequential, and represents at least a potential gain of a pecuniary or similarly valuable nature.”
That meant the traders who passed on and traded on inside information in the Newman case went free.
“In fact, it’s one of the easiest insider-trading cases I’ve ever seen.” While the appellate panel may have overreached in its eagerness to limit the damage from Newman, he said, the upshot is
that “the odds have again swung to the prosecutors’ advantage.”
Both the Newman and Martoma appeals turned on the relationship between the person who conveys inside information (the “tipper”)
and the person who receives and trades on it (“the tippee”).
That set the stage for Mr. Martoma to argue that he, likewise, had no close personal relationship with Dr. Gilman and
that the doctor didn’t reap any gain from disclosing the information.
Mr. Martoma is the former SAC Capital portfolio manager who was convicted of the biggest insider-trading offense in history, a series of trades based on confidential information
he coaxed from Dr. Sidney Gilman, an eminent neurologist at the University of Michigan who was overseeing tests of a promising drug for Alzheimer’s disease.