Divided U.S. Appellate Court Rejects Newman’s “Meaningfully Close Personal Relationship” Test for Insider Trading Liability

Overturning precedent set by its 2014 Newman decision, the U.S. Court of Appeals for the Second Circuit now no longer requires proof of a “meaningfully close personal relationship” between a tipper and a tippee to find insider trading liability. The decision in United States v. Martoma, issued by a divided three-judge panel, is relevant for companies, their executives, and other market participants facing insider trading investigations or prosecutions, because it expands the scope of insider trading liability and may embolden prosecutors to more aggressively pursue insider trading cases.

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