Two Views on Second Circuit's Insider Trading Decision

Here are two (ahem) differing views on yesterday's Second Circuit insider trading decision in United States v. Newman. The Wall Street Journal editorial writers are understandably happy at the ruling and contemptuous of Preet Bharara, dubbing him an Outside the Law Prosecutor. The Journal exaggerates the extent to which the case was an outlier under Second Circuit precedent and incorrectly states that "the prosecution is unlikely to be able to retry the case." The prosecution cannot retry the case, unless the full Second Circuit reverses the panel or the U.S. Supreme Court takes the case and overturns the Second Circuit.

Over at New Economic Perspectives, Professor Bill Black insists that the Second Circuit Makes Insider Trading the Perfect Crime. Black thinks Wall Street financial firms will enact sophisticated cut-out schemes in the wake of the opinion to give inside traders plausible deniability. He compares the fate of Newman and his co-defendant to that of Eric Garner and calls for a broken windows policing policy for Wall Street. Black's piece is outstanding, but in my view he underestimates the extent to which the Newman court was influenced by Supreme Court precedent and ignores the opinion's signals that the government needed to do a much better job of proving that the defendants knew about the tipper's fiduciary breach. As a matter of fact, in the typical insider trading case it is relatively easy to show such knowledge. That's what expert testimony and willful blindness instructions are for. 

(wisenberg)