A divided panel of the Second Circuit clarified in United States v. Martoma that insider trading does not require proof of a “meaningfully close personal relationship” between a tipper who gifts confidential information and the recipient of the disclosure who either tips or trades on the information.
In doing so, the court affirmed the insider trading conviction of Mathew Martoma, a former portfolio manager at S.A.C. Capital Advisors, LLC. In rejecting Mr. Martoma’s defense that the district court improperly instructed the jury in light of the Second Circuit’s decision in United States v. Newman—which held that a “personal benefit” could not be inferred absent proof of a “meaningfully close relationship” between the tipper and tippee—the Second Circuit held that Newman’s requirement was abrogated by the Supreme Court’s decision in Salman v. United States. Mr. Martoma will likely ask the full Second Circuit or the Supreme Court to review the ruling, but in the meantime the decision brings further clarity to insider trading liability and will provide a clearer path for the Government to obtain criminal convictions and findings of civil liability under a “gift theory” of insider trading liability.