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United States v. Martoma - 894 F.3d 64 (2d Cir. 2017)


The personal benefit element of insider trading can be met by evidence that the tipper's disclosure of inside information was intended to benefit the tippee. And as is clear from the purpose of the personal benefit element, the broad definition of personal benefit set forth in Dirks, and the variety of benefits that have been upheld, the evidentiary bar is not a high one. 


Martoma was found guilty, after a jury trial, of one count of conspiracy to commit securities fraud and two counts of securities fraud in connection with an insider trading scheme. After Martoma was convicted, this Court issued a decision (US v. Newman) concerning liability for a "tippee" who trades on confidential information obtained from an insider, or a “tipper." On appeal, Martoma argued that the jury in his case was not properly instructed and that the evidence presented at his trial was insufficient to sustain his conviction. Martoma contended that the jury instructions ran afoul of Newman by allowing the jury to find that a tipper receives a "personal benefit" from gifting inside information even where the tipper and tippee do not share a "meaningfully close personal relationship." He further argued that the evidence at trial was insufficient to sustain a conviction under any theory of personal benefit.


Were the jury instructions inconsistent with Newman?




The court held that the jury instructions were inconsistent with Newman. That decision held that a personal benefit in the form of "a gift of confidential information to a trading relative or friend" requires proof that the tipper and tippee share a "meaningfully close personal relationship.” Newman explained that this standard "requires evidence of 'a relationship between the insider and the recipient that suggests a quid pro quo from the latter, or an intention to benefit the [latter].'" Thus, Martoma's jury instructions were erroneous, not because they omitted the term "meaningfully close personal relationship," but because they allowed the jury to convict based solely on evidence of friendship without also requiring either that the tipper and tippee shared a quid pro quo-like relationship or that the tipper intended to benefit the tippee.

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