1 00:00:00,120 --> 00:00:03,000 Speaker 1: Today, the Supreme Court ruled in an insider trading case 2 00:00:03,040 --> 00:00:06,040 Speaker 1: for the first time in twenty years. The result a 3 00:00:06,120 --> 00:00:10,240 Speaker 1: unanimous ruling that bolsters the power of prosecutors. At issue 4 00:00:10,320 --> 00:00:12,559 Speaker 1: was whether people can be sent to prison for making 5 00:00:12,560 --> 00:00:15,600 Speaker 1: trades even when the insider the person who provided the tip, 6 00:00:16,040 --> 00:00:19,160 Speaker 1: wasn't looking to make any money. The Supreme Court said 7 00:00:19,520 --> 00:00:22,520 Speaker 1: it's enough if the insider made a gift of information 8 00:00:22,560 --> 00:00:25,880 Speaker 1: to a friend or relative knowing that person was likely 9 00:00:26,079 --> 00:00:29,800 Speaker 1: to make a trade. The ruling changes the law in 10 00:00:29,800 --> 00:00:31,800 Speaker 1: a part of the country that's quite important when it 11 00:00:31,840 --> 00:00:36,600 Speaker 1: comes to insider trading Wall Street. It reverses part of 12 00:00:36,640 --> 00:00:40,519 Speaker 1: a fourteen federal Appeals Court decision from New York that 13 00:00:40,640 --> 00:00:43,680 Speaker 1: had said the insider needed to receive at least some 14 00:00:43,960 --> 00:00:48,040 Speaker 1: concrete benefit. That ruling undercut U S Attorney Pre Barrar's 15 00:00:48,120 --> 00:00:50,640 Speaker 1: eight year crackdown and led to more than a dozen 16 00:00:50,680 --> 00:00:54,120 Speaker 1: insider convictions being thrown out. With US today to talk 17 00:00:54,160 --> 00:00:57,240 Speaker 1: about this ruling are Peter Henning, a professor at Wayne 18 00:00:57,240 --> 00:01:01,760 Speaker 1: State University, and Robert Hockett, a pfessor at Cornell University. 19 00:01:01,880 --> 00:01:05,319 Speaker 1: Thanks to both of you for joining us. Peter um, 20 00:01:05,440 --> 00:01:07,160 Speaker 1: why don't we just start, just give us the facts 21 00:01:07,160 --> 00:01:09,440 Speaker 1: of this case. That this is not one of those 22 00:01:09,440 --> 00:01:13,399 Speaker 1: big Wall Street cases that everyone has been talking about 23 00:01:13,400 --> 00:01:16,800 Speaker 1: so much. No, I mean, this case came out of California. 24 00:01:17,400 --> 00:01:22,160 Speaker 1: You had one brother, um in the case, worked as 25 00:01:22,200 --> 00:01:27,520 Speaker 1: an investment banker doing healthcare deals, and he told his 26 00:01:27,600 --> 00:01:30,200 Speaker 1: brother who he was very close to, and the government 27 00:01:30,240 --> 00:01:33,960 Speaker 1: showed that at trial he gave his brother information about 28 00:01:33,959 --> 00:01:38,840 Speaker 1: impending deals essentially to help his brother out. Now, um, 29 00:01:39,120 --> 00:01:43,600 Speaker 1: one brother was going to get married, and um, his 30 00:01:43,720 --> 00:01:47,360 Speaker 1: new wife's brother was the defendant in this case. Mr 31 00:01:47,480 --> 00:01:51,320 Speaker 1: Salmon and Mr Salmon got the information and then traded 32 00:01:51,360 --> 00:01:54,920 Speaker 1: on it, knowing that it came from the brother. And 33 00:01:55,000 --> 00:01:59,400 Speaker 1: so the core issue in the case was did the 34 00:01:59,440 --> 00:02:04,080 Speaker 1: one brother have to give any tangible benefit, something almost 35 00:02:04,080 --> 00:02:08,480 Speaker 1: pecuniary to the other brother or was the warm and 36 00:02:08,520 --> 00:02:11,640 Speaker 1: fuzzy feeling that a relative gets when giving a gift 37 00:02:11,639 --> 00:02:15,680 Speaker 1: to another relative Was that enough to establish the insider trading? 38 00:02:16,040 --> 00:02:18,280 Speaker 1: And the court said the warm and fuzzy feeling can 39 00:02:18,360 --> 00:02:22,120 Speaker 1: be enough, Bob. So did the Supreme Court basically go 40 00:02:22,240 --> 00:02:26,320 Speaker 1: back to its own decision in three in Dirks to 41 00:02:26,480 --> 00:02:30,280 Speaker 1: make this ruling not really changing the law. That's right, yeah, 42 00:02:30,280 --> 00:02:32,480 Speaker 1: it definitely did. In fact, you guys might remember when 43 00:02:32,480 --> 00:02:34,600 Speaker 1: you had Peter and I on before the day that 44 00:02:34,600 --> 00:02:37,600 Speaker 1: the oral arguments were held this autumn, we both noted 45 00:02:37,639 --> 00:02:39,720 Speaker 1: that really this law was settled long ago by the 46 00:02:39,720 --> 00:02:43,880 Speaker 1: Dirk's decision, and there wasn't any appreciable distinction, it seems 47 00:02:43,919 --> 00:02:46,239 Speaker 1: to us, between the facts of this case, uh and 48 00:02:46,320 --> 00:02:48,920 Speaker 1: those of dirk UM. And so we've predicted that the 49 00:02:49,200 --> 00:02:51,639 Speaker 1: Supreme Court would come out in favor of the prosecutors here, 50 00:02:51,639 --> 00:02:53,880 Speaker 1: that it would overturn the Second Circuit decision, and I 51 00:02:53,919 --> 00:02:56,280 Speaker 1: believe we even both predicted that it would be unanimous, 52 00:02:56,639 --> 00:02:59,000 Speaker 1: which in fact it was the sort of tomb have 53 00:02:59,120 --> 00:03:02,480 Speaker 1: to check our have to check the tapes on that. Yeah. Yeah. 54 00:03:02,760 --> 00:03:06,800 Speaker 1: And well, to top that off, Justice Alito actually said 55 00:03:07,160 --> 00:03:11,320 Speaker 1: just direct, quite directly, that Dirk's itself suffices to settle 56 00:03:11,480 --> 00:03:15,280 Speaker 1: this case. Uh. The one minor correction, and I would add, 57 00:03:15,280 --> 00:03:17,400 Speaker 1: maybe I think that we're really talking about a relation 58 00:03:17,440 --> 00:03:19,399 Speaker 1: between a brother and a brother in law here rather 59 00:03:19,440 --> 00:03:22,440 Speaker 1: than between two brothers. Um. But the but the basic 60 00:03:22,480 --> 00:03:25,680 Speaker 1: principle is the same. Who We're basically talking about a 61 00:03:25,720 --> 00:03:28,600 Speaker 1: case where you know, I have inside information, privileged information, 62 00:03:28,600 --> 00:03:31,000 Speaker 1: and virtue of my position, I pass it along to 63 00:03:31,200 --> 00:03:33,880 Speaker 1: you as my sister in law. Let's say in this case, 64 00:03:34,160 --> 00:03:36,520 Speaker 1: then you and I do so in anticipation that you'll 65 00:03:36,560 --> 00:03:38,840 Speaker 1: trade on that information in order to make money on 66 00:03:38,880 --> 00:03:41,480 Speaker 1: the basis of this kind of privileged access to information 67 00:03:41,520 --> 00:03:44,400 Speaker 1: that you now have indirectly via me um. And the 68 00:03:44,480 --> 00:03:47,280 Speaker 1: question is, are you yourself engaged in a form of 69 00:03:47,280 --> 00:03:50,120 Speaker 1: insider trading that has been known since Dirk's as at 70 00:03:50,120 --> 00:03:54,720 Speaker 1: the least sin as uh at the latest tippy trading Um. 71 00:03:54,760 --> 00:03:56,880 Speaker 1: So again, this this was the law of the land 72 00:03:56,920 --> 00:04:00,680 Speaker 1: across the nation until the Second Circuit. The and was 73 00:04:00,720 --> 00:04:03,320 Speaker 1: an extreme outlier, as I believe both Peter and I 74 00:04:03,360 --> 00:04:06,200 Speaker 1: noted this this autumnhen we were on with you guys, um, 75 00:04:06,320 --> 00:04:08,200 Speaker 1: and that was what was unusual. And all the Supreme 76 00:04:08,200 --> 00:04:10,920 Speaker 1: Court has done today is sort of restore the status 77 00:04:11,040 --> 00:04:13,839 Speaker 1: balonte um. And And then again it's worth noting again 78 00:04:13,880 --> 00:04:16,599 Speaker 1: that everybody was very surprised by the Newman decision handed 79 00:04:16,600 --> 00:04:19,120 Speaker 1: down with the Second Circuit in twenty fourteen, So it's 80 00:04:19,240 --> 00:04:21,599 Speaker 1: scarcely surprising than the Supreme Court has set the record 81 00:04:21,640 --> 00:04:25,400 Speaker 1: straight and put things back to where they were in June. 82 00:04:25,440 --> 00:04:26,840 Speaker 1: I want to go on the record is saying I 83 00:04:26,839 --> 00:04:29,359 Speaker 1: did not predict this would be a unanimous decision, although 84 00:04:29,360 --> 00:04:34,200 Speaker 1: the arguments certainly did suggest that the government was gonna win. Um, Peter, 85 00:04:34,320 --> 00:04:36,640 Speaker 1: let's talk about the Second Circuit, because that is one 86 00:04:36,640 --> 00:04:40,440 Speaker 1: place where this decision does change the law. How much 87 00:04:40,480 --> 00:04:43,920 Speaker 1: does it changed the law? What will be different there? Well, 88 00:04:44,000 --> 00:04:46,560 Speaker 1: I don't think it changes the law all that much, 89 00:04:47,160 --> 00:04:51,640 Speaker 1: except that it makes the prosecutor's job a little bit easier. 90 00:04:52,240 --> 00:04:56,160 Speaker 1: You saw in a case that came after Noon and Against, 91 00:04:56,320 --> 00:04:59,359 Speaker 1: defended by the name of Shawn Stewart, in which the 92 00:04:59,480 --> 00:05:04,400 Speaker 1: government showed that he gave information to his father, who 93 00:05:04,440 --> 00:05:07,040 Speaker 1: traded on it and gave it to someone else to trade. 94 00:05:07,400 --> 00:05:11,560 Speaker 1: And in order to meet that Newman benefit requirement, the 95 00:05:11,600 --> 00:05:16,440 Speaker 1: government introduced evidence that the father bought or paid for 96 00:05:16,520 --> 00:05:19,440 Speaker 1: the photographer at his son's wedding. And you look at 97 00:05:19,440 --> 00:05:22,200 Speaker 1: that and you go, how is that some kind of 98 00:05:22,200 --> 00:05:25,960 Speaker 1: special benefit for inside information? That kind of evidence is 99 00:05:26,080 --> 00:05:31,000 Speaker 1: no longer necessary. The parental relationship can be enough, even 100 00:05:31,080 --> 00:05:35,279 Speaker 1: friendship can be enough. Has to be close enough so 101 00:05:35,320 --> 00:05:39,400 Speaker 1: that it generates that kind of gift that the Supreme 102 00:05:39,400 --> 00:05:42,480 Speaker 1: Court talked about, So it will be a little bit 103 00:05:42,520 --> 00:05:45,839 Speaker 1: easier for prosecutors in uh New York City, where a 104 00:05:45,839 --> 00:05:48,599 Speaker 1: lot of these cases are brought, but it does not 105 00:05:48,680 --> 00:05:50,720 Speaker 1: get rid of the other part of Newman, which is 106 00:05:50,760 --> 00:05:54,880 Speaker 1: also important. The government has to show that the tippy 107 00:05:55,040 --> 00:05:58,359 Speaker 1: knows that the tipper received a benefit, and of course 108 00:05:58,400 --> 00:06:02,039 Speaker 1: for remote tippies people down the chain, that can be 109 00:06:02,120 --> 00:06:05,520 Speaker 1: hard to prove sometimes. And in fact, the defendants in 110 00:06:05,560 --> 00:06:08,160 Speaker 1: the Newman case are in the exact same position they 111 00:06:08,160 --> 00:06:13,320 Speaker 1: were before, even though part of that case effectively got reversed. So, Bob, 112 00:06:13,360 --> 00:06:17,520 Speaker 1: does this mean that part of the law and the 113 00:06:17,600 --> 00:06:21,080 Speaker 1: Second Circuit is different in some respects from the law 114 00:06:21,440 --> 00:06:25,359 Speaker 1: in the Ninth Circuit? Well? Um, the only way to 115 00:06:25,360 --> 00:06:27,479 Speaker 1: make that really clear would be to have another case 116 00:06:27,560 --> 00:06:31,640 Speaker 1: come along where the facts sort of differ enough from 117 00:06:31,680 --> 00:06:34,320 Speaker 1: the original back pattern that that was underlying the Dirk's 118 00:06:34,320 --> 00:06:37,800 Speaker 1: decision in three to sort of give the court occasion 119 00:06:38,120 --> 00:06:40,520 Speaker 1: to determine whether Dirk's itself has to be sort of 120 00:06:40,520 --> 00:06:43,640 Speaker 1: fine tuned. Um, and whether you know, the Second Circuit 121 00:06:43,640 --> 00:06:45,640 Speaker 1: is sort of fine tuned it in one way while 122 00:06:45,680 --> 00:06:48,000 Speaker 1: the rest of the nation or the other circuits that 123 00:06:48,360 --> 00:06:50,520 Speaker 1: have fine tuned it in another way. But as things 124 00:06:50,680 --> 00:06:53,960 Speaker 1: currently stand. The Supreme Court seems to be telling us, 125 00:06:54,360 --> 00:06:58,320 Speaker 1: essentially that the law that Dirks itself gave us as 126 00:06:58,360 --> 00:07:01,760 Speaker 1: of three is still in place, and that is the 127 00:07:01,839 --> 00:07:03,480 Speaker 1: law the end of the second circuit. It's the law 128 00:07:03,520 --> 00:07:06,599 Speaker 1: of every every circuit in the nation. UM. I would know, 129 00:07:06,720 --> 00:07:09,360 Speaker 1: maybe sort of further in addition, sort of playing off 130 00:07:09,400 --> 00:07:14,000 Speaker 1: of Peter's observation, UM that the the the idea that 131 00:07:14,200 --> 00:07:18,000 Speaker 1: some kind of benefit has to be anticipated by the 132 00:07:18,120 --> 00:07:22,040 Speaker 1: tipper him or herself, he is pretty well established even 133 00:07:22,160 --> 00:07:24,840 Speaker 1: in Dirk's and so the only real question is what 134 00:07:24,960 --> 00:07:28,240 Speaker 1: are the precise contours of the preciser sort of boundaries 135 00:07:28,720 --> 00:07:31,160 Speaker 1: of you know, what counts as as as the requisite 136 00:07:31,320 --> 00:07:34,320 Speaker 1: of benefit. We're talking today with law professors Peter Henning 137 00:07:34,320 --> 00:07:37,880 Speaker 1: of Wayne State University and Robert Hockett of Cornell University 138 00:07:37,960 --> 00:07:42,480 Speaker 1: about the Supreme Court's insider trader trading ruling today. Bob, 139 00:07:42,960 --> 00:07:46,360 Speaker 1: we were talking earlier about the knowledge requirement that the 140 00:07:46,360 --> 00:07:50,520 Speaker 1: Supreme Court didn't address in this ruling. In the arguments, UM, 141 00:07:50,600 --> 00:07:53,440 Speaker 1: I think the government suggested that wasn't an especially big 142 00:07:53,480 --> 00:07:56,920 Speaker 1: burden for the government to show. Um. Briefly, do you 143 00:07:56,960 --> 00:07:59,760 Speaker 1: think the government is right on that that point, Yeah, 144 00:07:59,800 --> 00:08:01,760 Speaker 1: I think it is right. I mean, I don't think 145 00:08:01,880 --> 00:08:03,960 Speaker 1: I don't think that's a terribly difficult thing to show, 146 00:08:04,120 --> 00:08:09,160 Speaker 1: primarily because the kind of um, the kind of gain, 147 00:08:09,400 --> 00:08:13,000 Speaker 1: the question about what kind of gain the tipper expects 148 00:08:13,040 --> 00:08:17,360 Speaker 1: to receive through the tip itself very much covers the 149 00:08:17,480 --> 00:08:19,800 Speaker 1: kind of knowledge that would be involved here, or the 150 00:08:19,880 --> 00:08:23,160 Speaker 1: kind of knowledge that we would expect the tippy to have. So, 151 00:08:23,240 --> 00:08:25,680 Speaker 1: for example, if you are my brother and I give 152 00:08:25,720 --> 00:08:28,040 Speaker 1: you inside information that I have by version of my 153 00:08:28,080 --> 00:08:31,680 Speaker 1: status as an insider, it's probably likely, I mean, it 154 00:08:31,760 --> 00:08:34,640 Speaker 1: seems overwhelmingly likely, in fact, that I'm expecting that you're 155 00:08:34,640 --> 00:08:37,000 Speaker 1: going to be trading on it, and you yourself are 156 00:08:37,040 --> 00:08:38,839 Speaker 1: going to kind of know that that's why I'm giving 157 00:08:38,840 --> 00:08:41,200 Speaker 1: it the information. If, on the other hand, you're simply 158 00:08:41,240 --> 00:08:44,439 Speaker 1: some person in the subway who overhears me tipping off 159 00:08:44,520 --> 00:08:46,760 Speaker 1: my brother who is sitting next to me, and then 160 00:08:46,800 --> 00:08:49,319 Speaker 1: you go and trade on the information, well, and of course, 161 00:08:49,480 --> 00:08:51,880 Speaker 1: you know, I mean, it's pretty easy. I think they're 162 00:08:52,000 --> 00:08:53,959 Speaker 1: to show that. Well, there's not going to be to 163 00:08:54,080 --> 00:08:57,800 Speaker 1: be liability available, right because I have not directly conferred 164 00:08:57,800 --> 00:08:59,880 Speaker 1: that benefit on you, And in a certain sense, then 165 00:09:00,080 --> 00:09:03,240 Speaker 1: knowledge question takes care of itself because I don't even 166 00:09:03,320 --> 00:09:07,400 Speaker 1: indirectly gain by m speaking to my brother in a 167 00:09:07,440 --> 00:09:12,880 Speaker 1: manner that you then you know inadvertently or accidentally over here. Um, yes, 168 00:09:13,080 --> 00:09:15,320 Speaker 1: I don't think there's any real fundamental change in the 169 00:09:15,360 --> 00:09:20,040 Speaker 1: law here relative to what it was between and two fourteen. 170 00:09:20,880 --> 00:09:24,680 Speaker 1: Some convicted inside traders have been watching this case to 171 00:09:24,720 --> 00:09:28,839 Speaker 1: see if a decision would help them to overturn their convictions. 172 00:09:28,920 --> 00:09:32,400 Speaker 1: So where does it leave people like Matthew Martoma and 173 00:09:32,679 --> 00:09:38,040 Speaker 1: Rajatte Gupta. I think, well, they're on the inside looking out. 174 00:09:38,120 --> 00:09:41,160 Speaker 1: I guess to the extent that UH. For Mr Martoma, 175 00:09:41,200 --> 00:09:44,640 Speaker 1: who is currently in a federal correctional institution, he had 176 00:09:44,679 --> 00:09:48,160 Speaker 1: tried to argue that the government hadn't met the Newman 177 00:09:48,240 --> 00:09:52,320 Speaker 1: requirement of a tangible benefit. Well that's gone now and 178 00:09:52,559 --> 00:09:56,800 Speaker 1: so probably the greatest impediment to affirming his conviction has 179 00:09:56,840 --> 00:10:01,520 Speaker 1: been taking taken away. Similarly, for Ms Dragupta trying to 180 00:10:01,600 --> 00:10:05,160 Speaker 1: have the conviction overturned, it's going to be very difficult 181 00:10:05,280 --> 00:10:10,160 Speaker 1: because again that tangible benefit requirement has gone so UH, 182 00:10:10,320 --> 00:10:14,200 Speaker 1: those cases are are likely to be victories for the 183 00:10:14,240 --> 00:10:18,079 Speaker 1: government and continue the trend of having UH the U. S. 184 00:10:18,120 --> 00:10:21,080 Speaker 1: Attorney's office in the Southern District rack up a number 185 00:10:21,120 --> 00:10:24,960 Speaker 1: of wins. Bob, how about going forward, would you anticipate 186 00:10:25,000 --> 00:10:27,679 Speaker 1: we'll see a renewed crackdown out of the U. S. 187 00:10:27,720 --> 00:10:31,160 Speaker 1: Attorney's office in New York? Yeah? I do. I think 188 00:10:31,240 --> 00:10:34,920 Speaker 1: at the very least, um uh U S. Attorneys here 189 00:10:34,920 --> 00:10:36,520 Speaker 1: in the Second Circuit are going to be sort of 190 00:10:36,760 --> 00:10:40,840 Speaker 1: reinvigorated or reassured that yes, the law as they thought 191 00:10:40,920 --> 00:10:44,560 Speaker 1: it to be as of fourteen really is still the law. 192 00:10:44,720 --> 00:10:46,400 Speaker 1: And it was the Newman decision out of the Second 193 00:10:46,440 --> 00:10:48,719 Speaker 1: Circuit in twenty fourteen that was the outlier. Here was 194 00:10:48,920 --> 00:10:53,920 Speaker 1: an aberration, a kind of anomaly. It's now been effectively erased. 195 00:10:54,040 --> 00:10:57,480 Speaker 1: I think for all practical purposes going forward, and I 196 00:10:57,520 --> 00:11:03,480 Speaker 1: think that should indeed constitute significantcouragement who prepar and other U. S. Attorneys, 197 00:11:03,520 --> 00:11:05,760 Speaker 1: especially during the Second Circuit to sort of proceed in 198 00:11:05,800 --> 00:11:07,959 Speaker 1: the way that they were kind of cracking down on 199 00:11:08,000 --> 00:11:12,760 Speaker 1: the recent rash of corruption that seems to be uh, 200 00:11:13,000 --> 00:11:15,319 Speaker 1: you know, sort of coming to public attention over the 201 00:11:15,400 --> 00:11:18,880 Speaker 1: last five years or so. Peter, is that your take 202 00:11:18,880 --> 00:11:21,719 Speaker 1: as well? Do you think, uh, we'll see a new 203 00:11:21,760 --> 00:11:26,520 Speaker 1: cracked renewed crackdown. I agree with Bob that I think, UM, 204 00:11:26,640 --> 00:11:30,200 Speaker 1: the U. S. Attorney's Office and certainly Mr Barrara's office 205 00:11:30,960 --> 00:11:34,040 Speaker 1: said that they were hesitant because of Newman, And there 206 00:11:34,120 --> 00:11:37,280 Speaker 1: was some talk in when the SEC brought charges against 207 00:11:37,559 --> 00:11:41,000 Speaker 1: Leon Cooperman that the U. S. Attorney's Office backed off 208 00:11:41,080 --> 00:11:45,160 Speaker 1: from that case because of concerns about Newman. UM that 209 00:11:45,480 --> 00:11:47,760 Speaker 1: whether that case ever gets brought is a different issue. 210 00:11:48,320 --> 00:11:52,800 Speaker 1: But Newman is no longer a concern, and so I 211 00:11:52,840 --> 00:11:57,240 Speaker 1: do think that there is that measure of reassurance, and UH, 212 00:11:57,320 --> 00:11:59,880 Speaker 1: the U. S. Attorney's Offices, the Justice Department is going 213 00:11:59,920 --> 00:12:03,440 Speaker 1: to push forward now, uh knowing that they can bring 214 00:12:03,559 --> 00:12:07,200 Speaker 1: these kind of tippy cases. I want to thank our 215 00:12:07,280 --> 00:12:10,920 Speaker 1: guests Bob Hockett of Cornell University and Peter Henning of 216 00:12:10,960 --> 00:12:15,079 Speaker 1: Wayne State University talking about the first insider trading ruling 217 00:12:15,080 --> 00:12:18,520 Speaker 1: from the Supreme Court in twenty years. Coming up, we 218 00:12:18,600 --> 00:12:23,280 Speaker 1: will talk about a mistrial in a case of South 219 00:12:23,360 --> 00:12:26,960 Speaker 1: Carolina police officer who shot a black man in the 220 00:12:27,000 --> 00:12:30,320 Speaker 1: back and killed him. A mistrial in that case that's 221 00:12:30,360 --> 00:12:33,559 Speaker 1: coming up here on Bloomberg Law. This is Bloomberg