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A few years ago, I blogged about the 2nd Circuit’s decision in U.S. v. Blaszczak, (2d. Cir.; 12/19), which addressed the elements that prosecutors had to establish in a criminal insider trading case under 18 U.S.C.§1348. That statute has become an increasingly popular alternative for prosecutors because on its face it doesn’t require them to establish some of the more difficult elements of a 10b-5 claim (such as a relationship of trust or confidence and a personal benefit) in order to obtain an insider trading conviction.

In its 2019 decision, the 2nd Circuit held that 18 U.S.C. §1348 doesn’t require the DOJ to prove that the defendant received a personal benefit, and affirmed convictions arising out of the defendants’ use of MNPI obtained from an employee of the federal government’s Center for Medicare and Medicaid Services (CMS) concerning potential changes reimbursement rates.

Last month, however, the 2nd Circuit overturned those convictions in light of the SCOTUS’s 2020 decision in U.S. v. Kelly, which held that federal fraud laws require that the defendants aim to “obtain money or property.” This Proskauer blog discusses the 2nd Circuit’s decision, and this excerpt addresses the conclusion that the information obtained from the CMS didn’t constitute “money or property”:

The majority held that CMS’s confidential, pre-decisional regulatory information was not CMS’s “property” here because “CMS is not a commercial entity; it does not sell, or offer for sale, a service or a product.” Moreover, the planned regulation, even if prematurely disclosed to outsiders, remained “within the exclusive control of CMS”; its disclosure thus had “no direct impact on the government’s fisc,” even if the leak “might well impact CMS’s subsequent regulatory choices.” The court therefore ruled that “merely obtaining advance information as to what the agency’s preferred regulation would be, and when it would be announced, cannot properly be considered the agency’s money or property or a thing of value that could be ‘convert[ed].’”

The blog also highlights a concurring opinion questioning whether it was appropriate not to require the government to establish a personal benefit in tipper-tippee cases brought under 18 U.S.C. §1348. The concurring judges pointed to the incongruity & potential unfairness of having a criminal statute requiring the government to establish fewer elements than it would be required to establish in order to prevail in a civil 10b-5 insider trading case. If the concurrence gets traction with other federal courts, the DOJ could find it much harder to use this particular end-around Rule 10b-5 in future cases.

– John Jenkins