Supreme Court Takes on Insider Trading “Personal Benefit” After All

Just when the Supreme Court appeared to be turning its collective attention away from the standard for insider trading convictions by denying the writ for certiorari in United States v. Newman, the Court today granted cert. in Salman v. United States, which addresses the “personal benefit” that a tipper must receive in an insider trading case.  (And speaking of recent cert. grants:  kudos to my colleague, Charles Casper, who, along with others, obtained a grant of certiorari in Microsoft Corporation v. Baker, No. 15-457, on behalf of Microsoft, in a case raising a class action jurisdictional challenge).

Back to insider trading.  The Court will now take up the following question, as posed by the petitioner in Salman:

Does the personal benefit to the insider that is necessary to establish insider trading under Dirks v. SEC, 463 U.S. 636 (1983), require proof of an “exchange that is objective, consequential, and represents at least a potential gain of a pecuniary or similarly valuable nature,” as the Second Circuit held in United States v. Newman, 773 F.3d 438 (2d Cir. 2014), cert. denied, No. 15-137 (U.S. Oct. 5, 2015), or is it enough that the insider and the tippee shared a close family relationship, as the Ninth Circuit held in this case?

In Salman, the remote-tippee defendant (Salman) received and traded on information received from the brother (Michael) of a Citigroup investment banker-insider (Maher).  Maher testified that he provided the information to his brother Michael to “get him off his back.”  Michael then provided the information to Salman.  The petitioner argued that, under the standard set by Newman, Maher, the insider, gained “nothing” – or at the very least nothing that was “objective” or “consequential” or that represented “a potential gain of a pecuniary or similarly valuable nature.”  Maher, it seems, was – like Spaulding Smails in Caddyshack – that family member whose relative was content to declare:  “you’ll get nothing and like it!”

The Ninth Circuit, however, explicitly rejected the approach in Newman and determined that it was sufficient that the government proved that the insider “made a gift of confidential information to a trading relative or friend.”  Because the government had established that link, the Ninth Circuit (Southern District of New York Judge Jed Rakoff, sitting by designation) concluded that the government satisfied its “personal benefit” burden.

But why did the Supreme Court pick Salman rather than weigh in on Newman?  While it is, of course, reading tea leaves, it nonetheless appears that the Court was persuaded by the petitioners’ argument (adopting the Justice Department’s arguments from the Newman petition) that the conflict generated by Newman and widened by Salman creates “uneven enforcement” of the securities laws and that Supreme Court review is necessary to “restore certainty and order” to the law of insider trading.

Moreover, petitioner argued that, unlike in Newman, where the Second Circuit based its decision on a second ground (the defendant’s lack of knowledge of any personal benefit), the “personal benefit” test here was outcome-determinative:  apply Newman, judgment reversed; require merely a gift to a family member, judgment affirmed.

As we argued previously in the context of Newman, we think that Newman got it right (or, at least, put us on the right path) by providing clarity as to the level of personal benefit required of a tipper in an insider trading prosecution.  What the Court does with Newman and Salman will surely be debated going forward, but in the meantime, there appears to be at least a final word on the subject coming shortly from One First Street.

Supreme Court Denies Review of Second Circuit’s Newman Insider Trading Decision

We’ve taken a summer (early fall?) recess here at White Collar Alert but have been jolted back into the blogosphere with the news of the Supreme Court’s denial of certiorari in United States v. Newman. We’ve written and blogged repeatedly (and here, too) about the Second Circuit’s decision in Newman, including the Government’s petition for a writ of certiorari to the Supreme Court. Yesterday, the Court denied the government’s petition, meaning the Second Circuit’s opinion remains binding precedent in the Second Circuit.

What exactly does this mean? For starters, the Second Circuit’s holding stands: the government must prove that an insider disclosed confidential, non-public information for a personal benefit, which must be “of some consequence” resembling “a relationship between the insider and the recipient that suggests a quid pro quo” or an intention to confer a future benefit. Further, the Second Circuit’s other holding in Newman – that a downstream tippee must know that the corporate insider-tipper received a personal benefit from the tip – was not subject to the petition for writ of certiorari and further remains binding in the Second Circuit.

What is left is to determine what the implications are for existing and future insider trading prosecutions. Already, U.S. Attorney for the Southern District of New York Preet Bharara forecasted in a press conference following the high court’s denial that executives and traders will have a “bonanza for friends and family of rich people who have access to material nonpublic information.” Bharara’s “bonanza” rhetoric appears, to put it mildly, over the top, as he acknowledged that 90% of the cases he’s brought are not implicated by the Circuit’s decision.

As for the other 10%? We at White Collar Alert will continue to stand by to monitor how the courts – and the nation’s prosecutors – approach insider trading cases in light of the Second Circuit’s now final decision. From our perspective, however, having more clearly defined standards for what is a “personal benefit” and what the government is required to prove a defendant knew before trading in a security promotes a more fair and just application of the securities laws, which are designed to protect against breaches of fiduciary duties by insiders. For now, at least, the precedential value of the Second Circuit’s decision is secure.

U.S. Government Appeals Landmark Insider Trading Decision to the Supreme Court

This guest post was authored by our colleague Rimma Tsvasman, an associate in the firm’s Litigation Department in New York. Rimma concentrates her practice on corporate and securities transactions, investment management and commercial litigation. She can be reached at rtsvasman@mmwr.com or 212-867-9500. 

In a highly anticipated move following a denied request for a rehearing, the Government has petitioned the Supreme Court for a writ of certiorari requesting the high court to overturn the Second Circuit’s landmark insider trading decision in U.S. v. Newman.

Although the Newman decision has not reached far beyond New York’s borders, as noted by MMWR partner Lathrop Nelson in this recent Bloomberg article, there is no denying that the decision is a prominent one coming from what Supreme Court Justice Harry Blackmun has called the “Mother Court” for securities law.  Indeed, if the Supreme Court decides not to hear the case or if the decision is left to stand, it would represent a big change to the securities law landscape – both in New York and in other jurisdictions which historically have deferred to the Second Circuit on securities law matters – and a blow to U.S. Attorney Preet Bharara’s legacy in aggressively policing Wall Street in the area of insider trading.

The Government itself has conceded that the Newman decision will dramatically limit its ability to prosecute some of the most common forms of insider trading which involves downstream tipping to individuals two or three steps removed from the so-called insider.  As noted by MMWR partner Mark Sheppard in an earlier post reporting on the Newman decision, many of the Government’s highest profile cases have been built upon the cooperation of those “downstream” traders who would be more empowered to resist the government’s efforts to secure that cooperation.  And although Newman is a criminal case, the Second Circuit did not limit its holding to such cases.  Therefore, civil enforcement cases stand to be impacted as well.

Already, the change caused by Newman is palpable as industry professionals hold their breath to see what the Supreme Court will do.  In just several months following the decision, defendants – including S.A.C. Capital Advisors’s Mathew Martoma and Michael Steinberg – have begun to file appeals to overturn their convictions in reliance on Newman.    And some defendants have already had their guilty pleas vacatedJust over a month after the Newman case was decided, the District Court for the Southern District of New York applied the case to vacate four guilty pleas in an insider trading action involving tips about a 2009 acquisition by IBM.  In that case, United States v. Conradt, No. 12 CR 887 (ALC), 2015 WL 480419 (S.D.N.Y. Jan. 22, 2015), the court expanded Newman’s application to cases based on the misappropriation theory, which imposes liability on third parties – such as lawyers – who are entrusted with confidential information as part of their work and break that trust by divulging the confidential information to others.

Decided on December 10, 2014, the Newman court put the brakes on aggressive insider trading prosecutions by holding that the Government must prove that the defendant knew the insiders disclosed confidential information in exchange for a personal benefit, and that the benefit was consequential and represented at least a potential gain of a pecuniary nature.  In other words, under Newman, friendly tips are no longer actionable.

In its petition to the Supreme Court, the Government argues that the Newman decision is at odds with the Supreme Court’s decision in Dirks v. SEC, which sets forth the personal-benefit standard, as well as other appeals court rulings, and has troubling implications for the Government’s ability to police insider trading.

The Supreme Court begins its new term in October, and will likely decide this Fall whether to consider the Government’s appeal.  We will be sure to keep you posted.

Former Oriole Swinging for the Fences in Insider Trading Prosecution

The fallout from the Second Circuit’s decision in United States v. Newman continues and threatens to affect not just future enforcement actions, but pending prosecutions. As we have noted before, the Second Circuit in Newman required that a trader / tippee know that an insider disclosed confidential, non-public information and that the insider did so in exchange for a personal benefit. The benefit must be “of some consequence” and more than mere friendship.doug_decinces_autograph

Just a week after the Second Circuit’s ruling, in an insider trading prosecution involving tips relating to a 2009 acquisition by IBM, a court questioned whether there was a sufficient factual basis for guilty pleas that were entered prior to the Second Circuit’s ruling. Others, including Michael Steinberg of SAC Capital Advisors, who was sentenced to three and half years for insider trading (see our coverage here and here) and who received the same flawed jury instruction that the Second Circuit criticized in Newman, may also benefit from the Second Circuit’s decision.

And that’s not all. The decision may touch upon one of the most high-profile insider trading investigations to reach Major League Baseball, the prosecution of former Oriole All-Star third baseman Doug DeCinces and several others. You may recall DeCinces from his two-out, ninth inning walk-off home run from the 1979 season that gave rise to “Orioles Magic.” Or maybe you recall his 1975 Topps rookie baseball card in which he shared real estate with the great Manny Trillo, the second baseman for the 1980 World Champion Phillies.

In any event, the government has alleged that DeCinces received material, non-public information from James Mazzo, the former CEO of Advanced Medical Optics, regarding that company’s pending acquisition by Abbott Laboratories. Although DeCinces is the only MLB player that has been prosecuted from this scheme, the investigation reached the Pantheon of baseball immortality, ensnaring fellow Oriole and Hall of Famer Eddie Murray, who allegedly traded on a tip from DeCinces and ultimately settled with the SEC for over $350,000 (without admitting or denying the allegations). DeCinces similarly settled with the SEC – for $2.5 million – but that didn’t stop federal prosecutors for charging him criminally with insider trading. Continue reading

UPDATE: Second Circuit Reverses “Downstream Tippee” Convictions

This guest post was authored by our colleague Mark B. Sheppard, a partner in the firm’s Litigation Department. Mark focuses his practice on white collar criminal defense, SEC Enforcement and complex commercial civil litigation. He can be reached at msheppard@mmwr.com or 215.772.7235.

As we predicted back in April, the Second Circuit Court of Appeals has dealt a significant blow to the Government’s ongoing efforts to successfully prosecute insider trading cases involving “downstream traders” or “tippees.” (United States v. Newman, 2d Cir., No. 13-1837, 12/10/14). In the ruling, the Panel court not only overturned the guilty verdicts of two hedge fund managers who traded on inside information received from other Wall Street analysts, it also took a shot at U.S. Attorney Preet Bharara’s aggressive enforcement of remote tippees, criticizing the “doctrinal novelty of (the Government’s) recent insider trading prosecutions….” This does not bode well for future prosecutions of downstream traders and will also limit civil enforcement activity against those traders who are two or three levels removed from the original insider source and imperils several high profile convictions and numerous guilty pleas.

In this case the defendant hedge fund managers “were several steps removed from the corporate insiders.” The Court also noted that the Government had failed to adduce evidence that either was aware of the source of the inside information or the circumstances under which it was conveyed. Despite this, the Government charged that the managers were criminally liable for insider trading because, as sophisticated traders, they must have known that information was disclosed by insiders in breach of a fiduciary duty, and not for any legitimate corporate purpose.

The Second Circuit disagreed. “In order to sustain a conviction for insider trading, the Government must prove beyond a reasonable doubt that the tippee knew that an insider disclosed confidential information and that he did so in exchange for a personal benefit.” (Emphasis in the original). Relying upon the Supreme Court’s decision in Dirks v. S.E.C., 463 U.S. 646 (1983), the Court explained “[t]he tippee’s duty to disclose or abstain is derivative from that of the insider’s duty.” Because the tipper’s breach of fiduciary duty requires that he “personally will benefit, directly or indirectly, from his disclosure a tippee may not be held liable in the absence of such benefit.” The jury instruction was therefore faulty because it permitted the jury to convict solely on a showing that the defendants knew that there had been a breach of fiduciary duty.

Having determined that the instruction was erroneous, the Court then turned to the evidence of personal benefit which it also found wanting.  It described the Government’s proof of personal benefit as “career advice” or the “ephemeral benefit… that one would expect to be derived from be derived from favors or friendship.” To accept such proof as sufficient would render the personal benefit requirement a nullity. Instead to maintain a conviction, the evidence of benefit must be “of some consequence” resembling “a relationship between the insider and the recipient that suggests a quid pro quo” or an intention to confer a future benefit. Finally and perhaps more significantly, even if the evidence of benefit were sufficient, the Government’s failure to prove the defendants’ knowledge of such benefit was fatal to the prosecution.

There is already debate as to the impact of this decision on efforts to regulate Wall Street professionals, with prosecutors downplaying it significance as limited to a “subset” of cases. This may be so but many of the Government’s highest profile cases have been built upon the cooperation of lower level “downstream” traders who will now be more embolden to resist the government’s efforts to secure that cooperation.

Insider Trading Probe a Bogey for Mickelson?

On Friday, the Wall Street Journal and New York Times reported that federal authorities are investigating investor Carl Icahn, gambler William Walters and golf champion Phil Mickelson for insider trading. Investigators are examining a series of successful trades by Walters and Mickelson of shares of Clorox in 2011 shortly before Icahn announced an unsolicited (and ultimately unpursued) take-over bid for the company. FBI agents first questioned Mickelson about the trades a year ago, pulling him off a plane in New Jersey, then again last Thursday following his first round at the Memorial Tournament. Mickelson and Icahn both have denied even knowing each other. However, both know Walters and he may have been the link between the two.

Full disclosure: I’m a Phil Mickelson fan. Whether it’s his swashbuckling, go-for-broke style or the fact that we’ve eagled the same par four (mine was a fluke; his was Phil being Phil). He’s a risk-taker and with his aggressive game on the course comes both the good (think pine straw in 2010) and the bad (think Winged Foot in 2006). Perhaps that risk-taking has now gotten him into the deep rough with the SEC and DOJ.

Maybe, but maybe not. Even if Icahn passed information to Walters, who then passed it along to Mickelson, who then made a series of successful trades, liability is far from clear, particularly for a “downstream tippee” like Mickelson.

For there to be any insider trading liability, the tipper – Icahn – must have breached a fiduciary duty. Although Rule 14e-3 prohibits certain persons from disclosing or trading on information in connection with a tender offer, the rule applies only where the person making the offer has taken “substantial step” in making it. Icahn, who has no affiliation with Clorox, never made the offer. Icahn may have had a duty to his own investors to keep the proposed offer confidential, but the basis of such a duty is unclear and would likely turn on any non-disclosure requirements Icahn had with his investors.

But there are additional challenges in attaching liability to Mickelson. Even assuming that Icahn had a duty to his own investors, the government would need to demonstrate that “Phil the Thrill” knew or should have known that Icahn was breaching a fiduciary duty by making the a disclosure of non-public, material information. In addition, as we have blogged about previously, the government may also be required to demonstrate that Mickelson also knew or should have known that Icahn received a personal benefit from making the tip (also assuming that Icahn, in fact, received a personal benefit, an assumption that is far from clear).

That’s a lot of assumptions. So, ultimately, while Phil didn’t have the greatest week (or season) on the course, the government has an uphill fight in reaching him as a downstream tippee. In the meantime, Mickelson will chase that elusive U.S. Open victory at Pinehurst while the SEC and the DOJ continue to shoot for the pin as they aggressively pursue insider trading.

Government Swimming Upstream at Second Circuit Oral Argument on Downstream Insider Trading Liability

The Justice Department has been bullish over its rigorous enforcement of insider training over the past year, but on Tuesday a Second Circuit panel raised questions regarding the government’s theory of liability that led to the conviction of two “downstream” traders. Before the court was the issue of whether tippees – recipients of inside information – can be convicted if they did not know that the tipper received any personal benefit for disclosure of inside information. The case may implicate how far downstream from the insider prosecutors can go in prosecuting “remote tippees” for insider trading.

In United States v. Newman, two hedge fund managers were convicted for participating in an insider trading scheme. The fund managers received detailed inside information from a source, but did not know the identity of the original insider. Though not quite the level of six degrees of Kevin Bacon, the defendants contended that they were four degrees away from the original tipper and had no information regarding whether the tipper received any personal benefit. At trial, the judge instructed the jury that the defendants must have known that the material, nonpublic information upon which the defendants traded was disclosed by the insider in violation of a duty of confidentiality. The jury convicted both defendants under that standard.

At oral argument before the Second Circuit, both the defendants and the government sparred over the application of the Supreme Court’s decision in Dirks v. SEC, 463 U.S. 646 (1993), to downstream tippee liability. In Dirks, the Court held that an insider tipper does not violate the securities laws unless he has disclosed information in breach of a duty, which the Court defined as whether “the insider personally will benefit directly or indirectly from his disclosure.” Id. at 662. The Court also addressed tippee liability, holding that the tippee cannot be liable unless he “knowingly participates with the fiduciary in such a breach.” Id. at 659. In Newman, the defense asserted that Dirks thus requires that the tippee know that the tipper provided inside information for a personal benefit. The prosecution argued that it needed to prove only that the information was provided in violation of a duty of confidentiality.

According to reports, the Second Circuit panel pushed back at oral argument against the government’s theory of liability. Judge Barrington Parker observed:

We sit in the financial capital of the world and the amorphous theory you have gives precious little guidance to all these financial institutions and all these hedge funds out there about a bright-line theory as to what they can and cannot do.

Of course, attempting to determine how a court will rule based upon comments or questioning at oral argument (or better yet, based on “downstream” information from media reports) can be a fool’s errand (just as downstream inside information about a hot stock tip can be both factually wrong and legally perilous). But reports of the argument suggest a healthy skepticism of the government’s theory of liability. Ultimately, we must wait for the Second Circuit’s decision for guidance on what knowledge is necessary for a remote tippee’s liability and how the Second Circuit’s decision – assuming it provides clarity – affects the Department of Justice’s active insider trading prosecutions. Stay tuned to White Collar Alert for the latest.

Bharara’s Fire Dies Out: Cohen Remains Uncharged And Turns His Losses Into Gains

As the chapter closes on the decade-long insider trading investigation of SAC Capital Advisors, our question has finally been answered—at least for now: billionaire hedge fund guru Steven A. Cohen has dodged criminal charges for his role in managing the company now convicted of systemic insider trading. It seems, after all, that Manhattan U.S. Attorney Preet Bharara did not have enough fuel in his fire to engulf Cohen.

What is undisputedly the largest insider trading prosecution in American history, the United States of America v. S.A.C. Capital Advisors, L.P., et al. drew to a close April 10, 2014, as U.S. District Judge Laura Taylor Swain accepted SAC’s guilty plea. SAC will pay an unprecedented $1.8 billion in penalties, serve a probation sentence of five years, wind down its business affairs as an investment advisor for third parties, and retain a compliance consultant to evaluate and report on insider trading compliance procedures.

With a sentence like that, one would think that SAC’s days are numbered. But Cohen has been quick to reinvent himself and christen Point72 Asset Management as the legal successor to SAC, a family office that will assume the reins of Cohen’s investing, trading, and portfolio management. Perhaps in an attempt to get out from under the SEC’s watchful eye, Point72 was specifically founded as a “family office,” a wealth management office that will not be subject to SEC regulation as other investment advisors, such as SAC, are. 17 C.F.R. § 275.202(a)(11)(G)–1. Just how wide a net can a family office cast when soliciting clients, you ask? Point72 will be permitted to invest and manage the money of Cohen’s family members, key employees, certain non-profit organizations, estates, and trusts, and any company owned and operated for the benefit of family clients. Id. And what’s more, key employees include Point72’s executive officers, directors, trustees, and general partners, not to mention employees who have participated in Point72’s investment activities for the past twelve months. Id. Does Point72 sound like a revamped version of SAC? Perhaps, but then again, Cohen’s uncanny ability to turn such massive losses somehow into entrepreneurial opportunities are conceivably the reason behind his seemingly endless success.

To those critics who think that SAC walked away essentially unscathed, the terms of the plea were unequivocally supported by SAC and the Government alike. As the Government wrote in its sentencing memorandum of April 3, 2014:

The $900 million fine imposed on the SAC Entity Defendants pursuant to the Plea Agreement is, to the Government’s knowledge, the largest criminal fine ever imposed in an insider trading case. When combined with the $900 million judgment in the Forfeiture Action, it represents an amount that is several times larger than the illicit gains and avoided losses resulting from the insider trading alleged in the Indictment. This financial penalty, together with the non-financial penalties and considerations set forth in the Plea Agreement, is an appropriate punishment for the criminal conduct at SAC Capital – where eight employees to date have been convicted of insider trading – and provides a strong message of deterrence to other institutions…

Gov’t Sentencing Mem. at 2, United States of America v. S.A.C. Capital Advisors, L.P., et al. (2nd Cir. 2014) (13-CR-00541-LTS).

But alas, prosecutors have left themselves wiggle room. The executed plea agreement unambiguously reserves the right to investigate and pursue charges against other individuals—i.e. Cohen. Id. at 7. So perhaps I spoke too soon, perhaps the question still remains: Will Bharara ever have enough fuel to fire the indictment of Cohen?

Bharara’s Infernal Region Expanded By One: Martoma Convicted

For those of us following the prosecutions of SAC Capital Advisors LP, today marked another milestone in U.S. Attorney Preet Bharara’s quest against insider-trading.  Mathew Martoma, ex-SAC fund manager and pharmaceutical-industry analyst, was found guilty this afternoon of one count of conspiracy and two counts of securities fraud.  He became the seventy-ninth consecutive individual to have pled guilty or to have been convicted by the U.S. Attorney’s Office in the federal government’s recent crackdown on insider-trading.

After deliberating for two days, federal jurors concluded that Martoma received insider information regarding Alzheimer’s disease drug trials and manipulated the information to trade large blocks of Elan Corp. and Wyeth shares.  Ultimately, Martoma made profits for SAC amounting to $276 million.

And yet, despite seven consecutive convictions of SAC fund managers, the million dollar question remains: will Martoma’s conviction add enough fuel to Bharara’s fire to motivate the U.S. Attorney’s Office to pursue a prosecution against SAC kingpin Steven Cohen?

The Blame Game: Who Should be Indicted – the Company or the Individual?

Just how wide is the net being cast upon SAC by federal authorities?  Last week, I posted about the unprecedented plea agreement worked out between prosecutors and SAC Capital Advisors, L.P. in what could be described as the most rampant insider trading scheme ever charged.

Last Friday, SAC’s general counsel, Peter Nussbaum, appeared in federal court to plead guilty to all five charges filed against SAC on the behalf of the company.  The presiding criminal judge, U.S. District Judge Laura Taylor Swain, was emphatic that she would not approve the agreement without an exhaustive review of its terms, including the “no immunity clause” which provides “no immunity from prosecution for any individual and does not restrict the government from charging any individual for any criminal offense,” a clause that allows the government to potentially charge SAC’s founder, Steven A. Cohen.  And while national headlines are abuzz about SAC – the company – reporters have been remiss to discuss the implications of alleged insider trading upon SAC’s individuals – alumni, traders, and advisors.

Here is the scoop on some of the primary individuals indicted in connection with SAC:

  • Richard Lee, former SAC trader, pled guilty to insider trading and is cooperating with prosecutors.  Lee was allegedly responsible for giving the government information about SAC’s so-called expert networks that connect traders with corporate insiders and the company’s questionable hiring procedures and protocol, including the fact that he was hired by SAC after being terminated by a prior hedge fund on his first day of employment for accessing the hedge fund’s accounting system and misstating the value of his holdings.
  • Donald Longueuil and Noah Freeman, both former portfolio managers, were charged with insider trading relative to publicly traded technology companies, including chip maker Marvell Technology.  Freeman received insider information about Marvell, which he passed along to Longueuil, who turned the tip into a $1 million profit.  Reportedly, Longueuil was taken down in part of a larger effort by authorities to crack down on SAC’s so-called expert networks.  He pled guilty in 2011 and is currently serving a two and a half year sentence.  Freeman pled guilty in 2011 but because he is cooperating with prosecutors, he has yet to be sentenced.
  • Jon Horvath, a former technology industry analyst pleaded guilty in September 2013, for his role in the insider trading conspiracy involving Dell computer and the chip maker Nvidia.  The conspiracy allegedly earned $62 million in illegal gains and included Horvath’s former boss, Michael Steinberg.
  • Anthony Chiasson, co-founder of Level Global Investors, was convicted by a federal jury of illegally trading the technology stocks Dell and Nvidia as part of the conspiracy discussed, supra.  On appeal, Chiasson’s attorneys are arguing that Chiasson lacked knowledge that the insider information was, in fact, given by tippers with the intent to benefit themselves.
  • Michael Steinberg, former SAC portfolio manager, has been indicted for insider trading and the government contends that he utilized secret tips about quarterly earnings results from computer mogul Dell and technology company Nvidia.  He is scheduled for trial on Monday, November 18.  With SAC’s increased notoriety and significant media attention in the past few weeks, Steinberg’s lawyers have already raised concerns that he may not be able to obtain a fair and impartial jury.
  • Mathew Martoma, an ex-SAC trader and pharmaceutical-industry analyst, is charged with conspiring to profit from insider knowledge pertaining to an Alzheimer’s drug and is scheduled for trial in January 2014.  Prosecutors allege that Martoma received insider information about a drug trial from Sidney Gilman, a neurology professor at Michigan and leading expert in Alzheimer’s disease.  Based on Gilman’s tip, Martoma bought and sold large blocks of Elan and Wyeth shares and was allegedly able to avoid losses and make profits for SAC amounting to $276 million, the biggest insider-trading case in history.

Questions remain: how will these prosecutions affect company founder Cohen?  Specifically, will information obtained through cooperating defendants and/or outstanding trials result in the government turning its attention from the company to Cohen, the individual on top?