On December 10, 2014, the U.S. Court of Appeals for the Second Circuit vacated the convictions of Todd Newman, a portfolio manager at Diamondback Capital Management, LLC, and Anthony Chiasson, a portfolio manager at Level Global Investors, L.P., who were convicted of conspiracy to commit securities fraud by a jury in the Southern District of New York in December 2012.  The Second Circuit held that to obtain an insider trading conviction against a tippee, the Government must prove that the tippee knew both that an insider disclosed confidential information and that the insider did so in exchange for a personal benefit.  The Court emphasized that “without establishing that the tippee knows of the personal benefit received by the insider in exchange for the disclosure, the Government cannot meet its burden of showing that the tippee knew of a breach.”  Furthermore, the Court held that inferring a benefit from personal relationships is impermissible “in the absence of proof of 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.”  The Second Circuit vacated defendants’ convictions and remanded for dismissal because the district court improperly instructed the jury, there was insufficient evidence showing that the insiders received a personal benefit and, even assuming that evidence of the insiders’ personal benefit was sufficient, there was insufficient evidence that defendants knew that they were trading on information obtained in violation of the insiders’ fiduciary duties.  The Government moved for and was granted an extension of time until January 23, 2015 to file a petition for panel rehearing and/or rehearing en banc.  A Client Memorandum issued by Davis Polk regarding the decision can be accessed hereUnited States v. Newman, Nos. 13-1837-cr, 13-1917-cr (2d Cir.)

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