The Second Circuit’s decision in United States v. Newman continues to have a ripple effect. On Friday, a federal judge in California denied a motion to dismiss insider trading charges based on Newman. The California ruling came in the criminal prosecution of James Mazzo, the CEO and Chairman of the Board of a medical device company, for insider trading. Mazzo allegedly provided material non-public information about potential mergers to a friend, former Baltimore Orioles player Doug DeCinces, who traded on the information.
Mazzo moved to dismiss the charges arguing that prosecutors would not be able to prove he engaged in insider trading following Newman. Mazzo contended Newman forces prosecutors to establish that alleged tippers provided material non-public information to obtain a “personal benefit” greater than the “ephemeral benefit” of friendship. The indictment, Mazzo argued, alleges he and DeCinces were friends, but fails to allege facts suggesting he provided information to receive a “personal benefit” other than continued friendship.
Prosecutors opposed the motion on numerous grounds. Principally, they argued Newman did not apply to any of the charges against Mazzo because it concerned liability for downstream tippees, and he was charged as a tipper. The Supreme Court has established the elements of tipper liability, they asserted, and Newman did not alter or add to those elements. Prosecutors also argued that the indictment satisfied Newman, because its allegations, which must be accepted as true in evaluating a motion to dismiss, alleged that Mazzo provided information for a “personal benefit.”
The Court held a hearing on Mazzo’s motion and took it under submission before denying the motion without a written opinion. We will continue to monitor the effect of Newman.