CrimProf Blog

Editor: Kevin Cole
Univ. of San Diego School of Law

Tuesday, February 4, 2020

Vollmer on Tipping and Securities and Wire Fraud

Andrew N. Vollmer (Mercatus Center at George Mason University) has posted The Second Circuit’s Blaszczak Decision: Dirks Besieged on SSRN. Here is the abstract:
A major issue in United States v. Blaszczak, 2019 WL 7289753 (2d Cir.), was whether the government needed to prove the elements of a Rule 10b-5 tipping violation from Dirks v. SEC, 463 U.S. 646 (1983), when charging a tipper and tippees with the crimes of wire fraud and securities fraud in Title 18. The Second Circuit’s answer was no. The elements for an insider trading violation based on tipping were not the same for Title 18 fraud and Rule 10b-5. In particular, the government did not need to prove that an insider received a personal benefit in exchange for disclosing material, non-public information to an outsider (*8-9).

The majority in Blasczcak committed serious legal errors in concluding that the Dirks test for tipping does not apply to the Title 18 frauds.
This paper addresses two of them. First, the majority spurned the Dirks test but failed to define the elements necessary as a matter of law to hold a tipper and tippee liable in a securities trading case for a Title 18 fraud. Second, a critical part of the majority’s reasoning was an inappropriate and unpersuasive distinction between the statutory purpose behind a Rule 10b-5 tipping violation and a tipping violation caught by Title 18 fraud.

The decision is another example of the misunderstanding of and hostility to the personal benefit element of Dirks evident in Salman v. United States, 137 S. Ct. 420 (2016), and United States v. Martoma, 894 F.3d 64 (2d Cir. 2018). Dirks is besieged.

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