Securities Enforcement Alert: Raising the Bar for Tippee Liability: Second Circuit Overturns Two Insider Trading Convictions

Summary: The Second Circuit has issued an important decision overturning two insider trading convictions and, in so doing, has clarified the standard for insider trading liability for tippees. The court’s holding—that the government must establish: (1) that the original tipper received a personal benefit in exchange for providing information; and (2) that the defendant-tippee knew of that personal benefit—provides both guidance and meaningful limitations on future prosecutions. Noting that the defendants were three or four steps removed from the corporate insiders who originally provided the information, the court stated that it had not found “a single case in which tippees as remote as [defendants] have been held criminally liable for insider trading.”