Bloomberg reports that:
A federal appeals court ruling that makes it harder to obtain insider-trading convictions was called “dramatically” wrong in the U.S. government’s first formal response to the sweeping decision.
In the Dec. 10 ruling tossing the convictions of two fund managers, the court said that, to be found guilty of insider trading, defendants must know their tips came from someone who not only had a duty to keep it secret but also got a benefit for leaking it. ...
The ruling “dramatically (and in our view, wrongly) departs from 30 years of controlling Supreme Court authority and, in so doing, legalizes manipulative and deceptive conduct that no court has ever sanctioned,” prosecutors said in a court filing Monday.
Wow. The government's argument is itself so dramatically wrong as to border on being deceptive. In fact, the case in question -- US v. Newman -- got it exactly right, as I explain in this post.
I'm particularly flummoxed by this claim made by the government:
The government’s response came in a case against four men who admitted trading on tips about IBM Corp.’s $1.2 billion purchase of the software company SPSS Inc. The information originated with a lawyer working on the deal. The judge in that case asked prosecutors about the effect of the appellate ruling. ...
They said the decision shouldn’t affect the IBM case because the four men admitted “misappropriating” or stealing the information. The government shouldn’t have to also show any personal benefit was traded for it, the prosecutors said.
In my book, Insider Trading Law and Policy, I explain that the government has made this argument before and lost:
The Eleventh Circuit has held that the personal benefit requirement applies to tipping cases brought under the misappropriation theory of liability, rejecting an SEC argument to the contrary. SEC v. Yun, 327 F.3d 1263 (11th Cir. 2003).
In its desperation to continue the war on insider trading (which reliably generates headlines, budget increases, and career advancement for prosecutors), the government has frequently stretched precedent to the breaking point. But this appears to take the proverbial cake.