The Second Circuit recently determined that the criminal securities fraud provisions that were enacted as part of the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley) have less onerous requirements for proving insider trading than under the general antifraud provisions of the Securities Exchange Act of 1934 (Exchange Act), specifically Section 10(b) of the Exchange Act. Section 10(b) has been the traditional way for prosecutors to charge insider trading. Pursuant to Supreme Court rulings, an insider must breach a duty of confidentiality and receive a “personal benefit” in order to have engaged in the illegal tipping of material, non-public information to others. Similarly, in order to prosecute the recipient of a tip for insider trading, prosecutors had been required to prove that the tippee knew that the source of the information had breached his or her duties by disclosing the information. In a 2-1 opinion issued on December 30, 2019, the Second Circuit upheld the convictions of several defendants for, among other things, violating the Sarbanes-Oxley securities fraud provision by engaging in insider trading despite the jury’s acquittal on the Section 10(b) charges because of the lack of proof that the tipper received a personal benefit. United States v. Blasczczak, No. 18-2825 (2d Cir. Dec. 30, 2019).
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