The ripple effects of the Second Circuit’s landmark insider trading decision, United States v. Newman, 773 F.3d 438 (2d Cir. 2014), were felt again last week. On Tuesday, February 23, 2016, the U.S. Securities and Exchange Commission (“SEC” or the “Commission”) ruled that Former Neuberger Berman Analyst Sandeep “Sandy” Goyal, whom the SEC previously barred from the securities industry after he pled guilty to insider trading, could participate in the industry again. The SEC’s rare decision to lift an administrative bar order resulted from Newman, (previously discussed at length here), which led to Goyal’s criminal conviction being vacated and the civil claims against him being dropped by the SEC. Newman raised the bar for what prosecutors in tipper/tippee insider trading cases have to show by holding that tipper/tippee liability requires the tipper to receive a “personal benefit” amounting to a quid pro quo or pecuniary benefit in exchange for the tip and the tippee to know of that benefit. Despite the SEC’s decision to drop the administrative bar against Goyal in light of Newman, as recently as SEC Speaks on February 19-20, 2016, SEC Deputy of Enforcement Stephanie Avakian affirmed that insider trading cases “continue to be a priority” for the Commission. Nonetheless, the ripple effects of Newman continue to call the government’s ability to successfully bring both criminal and civil cases into question.
Goyal was charged with insider trading in 2011 as part of the U.S. Attorney’s Office for the Southern District of New York’s high-profile investigation into insider trading at hedge funds. Goyal admitted to providing Diamondback Capital Management LLC, where Todd Newman and Anthony Chiasson (defendants in Newman) were portfolio managers, with insider information from Dell employee Rob Ray. Goyal initially agreed, along with other witnesses, to cooperate in the government’s criminal cases against Newman and Chiasson. Later, when Newman overturned Newman and Chiasson’s convictions and dismissed the indictments against them, related convictions secured by the government, including Goyal’s, dissolved. Goyal then argued that the basis for the bar order against him no longer existed and that the bar should be vacated. Holding that administrative bar orders would be vacated only in “compelling circumstances,” the Commission found that “such compelling circumstances” existed in Goyal’s case, where “the basis for the bar imposed has been vacated.”
In another Newman related-matter last week, a former health care products company chairman who previously pled guilty to insider trading, George Holley, asked that the Third Circuit vacate a related civil settlement with the SEC because Newman had “revolutionized the law of insider-trading.” Holley pled guilty in 2012 to providing his cousin and a friend with information about Nipro Corp.’s planned acquisition of Home Diagnostics, where Holley was chairman of the board. Holley now argues that his civil settlement should be vacated because the government did not show that he received the requisite “personal benefit” required by Newman.
Holley is merely one of dozens of insider trading defendants attempting to have their claims dismissed in light of Newman – just as Goyal is one of many attempting to use Newman to have administrative bars lifted. And those following the evolution of insider-trading law may not have to wait long for answers. In January 2016, the U.S. Supreme Court granted certiorari review of United States v. Salman, 792 F.3d 1087 (9th Cir. 2015), the Ninth Circuit decision that created a circuit split by holding that a tipper who passed a tip to a trading relative was sufficient to show a “personal benefit,” despite the fact that there was no pecuniary gain.