Insider Trading Decision Could Impact Future White-Collar Investigations and Prosecutions
Last week, the Second Circuit Court issued a potentially significant decision in an insider-trading case on remand from the Supreme Court that may significantly impact both insider trading investigations and broader “fraud” prosecutions going forward.
The case, United States v. Blaszczak, involved allegations that one of the defendants (the “tipper”) who worked for the U.S. government’s Center for Medicare and Medicaid Services (“CMS”), gave other defendants (the “tippees”) confidential information about the timing and substance of proposed changes to reimbursement rates for certain types of medical care for various health conditions (“CMS Data”). As alleged by the government, the tippees then used the CMS Data to execute profitable trades in companies that would be impacted by the changed reimbursement rates.
The government charged the defendants with the substantives offenses of (i) securities fraud under Section 10b of the 1934 Exchange Act and Rule 10b-5 (“10b-5 Securities Fraud”); (ii) securities fraud under 18 U.S.C. § 1348 (“1348 Securities Fraud”); (iii) wire fraud, in violation of 18 U.S.C. § 1343; and (iv) conversion of federal government property under 18 U.S.C. § 641, as well as conspiracy to commit those offenses.
At trial, the jury convicted the defendants of 1348 Securities Fraud, wire fraud, and section 641, as well as conspiracy, but acquitted them of substantive Rule 10b-5 Securities Fraud.
According to sources, here are several takeaways from the recent decision:
Far-Reaching: The majority’s narrow definition of “property” impacts the wire fraud statute and the conversion of property statute, both of which are “workhorse” federal statutes, used in a variety of contexts beyond insider trading and beyond securities fraud more generally.
Narrow Definition of Property: With both Blaszczak II’s (i) narrow definition of property and (ii) the concurrence’s criticisms of the lack of a personal-benefit test in Section 1348, it seems like Rule 10b-5, which does not require a deprivation of property, may, after all, remain the securities fraud statute of choice for government insider trading prosecutions.
So it looks like there are some new rules to know that will impact future white-collar investigations and prosecutions. And as we know, success or failure in the courtroom or during the settlement process depends on having the very best, most detailed information about a case. That’s why great attorneys and law firms across the country work with the worldwide team of Santoni Investigations who will ensure you know everything to make the right decisions and maximize the settlement process or win your case in court!