Second Circuit Denies Gupta Appeal of Insider Trading Conviction—Continuing to Give Broad Meaning to “Personal Benefit” Requirement
January 11, 2019
On January 11, the Second Circuit Court of Appeals denied the appeal of Rajat Gupta, who was seeking to undo his insider trading conviction.
Relying on the Second Circuit’s decision in United States v. Newman, Gupta argued that—to satisfy the requirement that Gupta personally benefit from tipping inside information—the Government must show “a quid pro quo – in which [Gupta] receive[d] an ‘objective, consequential . . . gain of a pecuniary or similarly valuable nature.’” In other words—intangible benefits should not, standing alone, constitute a personal benefit sufficient to uphold a criminal conviction. The Second Circuit rejected this argument, finding that the Supreme Court’s decisions in Dirks v. SEC and Salman v. United States foreclosed such a narrow definition of “benefit,” opting instead for a test that looked at “varying sets of circumstances”—including those that involve indirect, intangible, and nonquantifiable gains, such as an anticipated quid quo pro that can be inferred from an ongoing, business relationship—to satisfy the “personal benefit” test. This case is the latest in a line of decisions—in the Supreme Court, as well as the Second and Ninth Circuits—to reject defendants’ arguments for a narrow definition of the “personal benefit” element of insider trading law based on Newman.