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Insider Trading Ruling Restricts Prosecutions

December 10, 2014

Michael Dicke, Fenwick & West litigation partner and co-chair of the securities enforcement practice group, was quoted in multiple publications, including USA Today, regarding the U.S. Court of Appeals for the Second Circuit’s unanimous reversal of the insider trading convictions of two hedge fund managers.

The Second Circuit ruled that the two managers were too far removed from the sources of the stock tips to be found guilty; this ruling narrows the definition of what constitutes illegal insider trading.

Dicke, former U.S. Securities and Exchange Commission associate regional director for enforcement in San Francisco, told USA Today that the ruling could dampen civil insider trading cases by financial regulators.

“I guarantee that this [ruling] has the SEC reassessing its evidence in current insider trading investigations,” he added.

In a Law360 article on the ruling, Dicke also noted that “The bigger blow to the SEC and DOJ is the court’s significant narrowing of what can constitute a personal benefit. The court’s holding requires the government to prove both that the tipper/tippee relationship was ‘meaningfully close’ and that the benefit received by the tipper was a pecuniary gain that is ‘objective and consequential.’ This would preclude many SEC cases that rest merely on inferences that the insider received some reputational benefit from passing information to a friend. I guarantee that this holding has the SEC reassessing its evidence in current insider trading investigations."

The full articles are available through the Law360 (subscription required) and USA Today websites.