Tuesday, October 20, 2015

SEC Won’t Oppose Summary Judgment in Newman Civil Case

By Matthew Garza, J.D.

In light of the Supreme Court’s recent denial of certiorari in the insider trading criminal case against Todd Newman and Anthony Chiasson, attorneys for the pair have filed for summary judgment in the SEC’s 2012 civil suit. The motion will go unopposed, according to a response filed in federal district court in Manhattan by Daniel Marcus, an Assistant Regional Director in the SEC’s New York Regional Office (SEC v. Adondakis, October 13, 2015, Scheindlin, S.).

The Second Circuit overturned the convictions of Newman and Chiasson after finding that the DOJ did not show that they traded on confidential information disclosed by insiders at technology companies Dell and Nvidia in exchange for a personal benefit, a decision that the Supreme Court declined to review on October 5.

The Second Circuit held that for insider trading liability to attach, the tipper must receive a benefit more tangible than “the mere fact of friendship, particularly of a casual or social” nature. The SEC argued that this was a misapplication of the Supreme Court’s 1983 holding in SEC v. Dirks and would lead to confusion because it altered the recognized standard for personal benefit.

Prior proceedings. “The circumstantial evidence in this case is simply too thin to warrant the inference that the corporate insiders received any personal benefit in exchange for their tips,” said the Second Circuit after reviewing the record from the six-week trial. With this the court overturned the defendants’ convictions and ordered the Southern District of New York to dismiss the indictment with prejudice. After the convictions, the district court in Manhattan had entered partial summary judgment in favor of the SEC, which the court vacated after the Second Circuit overturned the convictions. The stay issued while the government sought review of the case was lifted on October 9.

Summary judgment motion. The SEC’s case alleges the same facts as the parallel criminal action, the defendants stated. On these facts the Second Circuit held as a matter of law that the insiders had not disclosed confidential information in exchange for a personal benefit, and Newman and Chiasson did not know nor deliberately avoid knowing of any such benefit. The holding was not based on the level of certainty with which the government had proved those facts and there is insufficient factual support for the SEC’s claims under any standard of proof, the defendants argued. They asserted that the court should therefore find that the SEC cannot prevail on its claims as a matter of law.

The case is No. 12-cv-0409 (SAS).

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