Industry: Securities Fraud

A divided Second Circuit panel (Katzmann, Pooler (dissenting), Chin) on Wednesday upheld the insider trading conviction of former SAC Capital portfolio manager Mathew Martoma.  Confronting its precedent in United States v. Newman, 773 F.3d 438 (2d Cir. 2014), for the first time since the Supreme Court struck down part of the Newman tippee liability standard this past December, see Salman v. United States, 137 S. Ct. 420 (2016), the Court ruled that the “meaningfully close personal relationship” requirement of Newman is no longer good law.  See United States v. Martoma, 14-3599 (2d Cir. Aug. 23, 2017). 

The Supreme Court’s decision in Salman v. United States, 137 S.Ct. 420 (2016) is already having an effect on the appeals arising out of the insider trading convictions in the Southern District of New York.  Shortly after Salman, the Second Circuit asked the parties in the insider trading case of United States v. Martoma to submit supplemental briefing discussing the decision’s impact.  Salman rejected the defendant’s argument that he could not be convicted of insider trading where his brother-in-law did not receive a pecuniary benefit for passing information to him, holding that the relative’s tip satisfied the standard for a “gift of confidential information to trading relatives.”  The decision partially overturned United States v. Newman, 773 F.3d 428 (2d Cir. 2014), which had required “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.”  Our prior coverage of Newman can be found here and here, and our prior coverage of Salman can be found here.

On August 15, 2016, the Second Circuit issued a rare opinion on the subject of the sufficiency of evidence to establish venue in United States v. Lange, No. 14-2442-cr (Jacobs, Chin, Droney).  In this securities fraud and conspiracy case, the Court found there was sufficient evidence that the defendants committed a crime in the Eastern District of New York (“EDNY”) when they were aware of “cold call” lists including EDNY residents and where emails soliciting investment were sent to a Postal Inspector in Brooklyn.  This connection was sufficient even though the participants in the scheme operated out of Washington State and had little contact with EDNY. 

In United States v. Bonventre, 14-4714-cr (April. 20, 2016) (JMW, RR, CFD), the Court affirmed by summary order the convictions of five former employees of Bernard L. Madoff Investment Securities (the “Appellants”) convicted in the Southern District of New York (Swain, J.)  for multiple counts of conspiratorial and substantive securities fraud, bank fraud, and records falsification; making false SEC and IRS filings; obstructing enforcement of tax laws; and tax evasion.