On October 28, the Second Circuit wrestled with how Newman should apply to another former SAC trader’s conviction, when it heard oral argument in United States v. Martoma.  Mathew Martoma was convicted by a jury of insider trading crimes and sentenced to nine years’ imprisonment.  He argued that his conviction could not stand in light of Newman, which requires prosecutors to show that sources of   inside information received a personal benefit “of a pecuniary or similarly valuable nature” beyond mere friendship.  The trial judge in Martoma’s case instructed the jury that the personal benefit could include “maintaining or developing a personal friendship.”  The appellate panel—Chief Judge Robert Katzmann and Judges Denny Chin and Rosemary Pooler—questioned how prosecutors could be confident that the jury did not convict based on friendship, given Martoma’s argument that his source was only a casual acquaintance and was not paid for two consulting meetings during which he allegedly divulged market-moving tips.  Martoma’s attorney argued that prosecutors “decided to make a case based on a cup of coffee and some expressions of concern,” adding, “I don’t think this jury instruction is appropriate in a post-Newman world.”  Chief Judge Katzmann said that a victory for Martoma could “have the effect of stymying virtually all insider trading cases.”  United States v. Martoma, 14-3599 (2d Cir.).

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