The Southern District of New York has seen a resurgence in government lawsuits over insider trading in 2016 following a 2015 decline that has been attributed by commentators to the Second Circuit’s decision in U.S. v. Newman. The U.S. Attorney’s Office there, led by Preet Bharara, has filed charges against 11 individuals so far this year, a pace that hasn’t happened since 2012, when the office filed cases against 17 people.
In Newman, the Second Circuit held that illegal insider trading under this this theory required the tipper to receive a benefit of consequence in exchange for the tip. The Reuters article focuses on the use of cooperating witnesses in order to meet the Second Circuit’s high standard.
This is not the first time that we have heard of the importance of cooperating witnesses in insider trading cases. In a speech last May, Enforcement Director Andrew Ceresney said that there were more than 80 agreements with cooperating witnesses since the program started in 2010. Cooperating witnesses are typically potential defendants that provide information, testimony and perhaps even wiretap recordings against other defendants in exchange for lighter sentences or monetary sanctions.
Behind the scenes, we also expect that the insider trading whistleblowers are assisting with these prosecutions through the SEC whistleblower program. The SEC had a long-running reward program to provide monetary incentives to individuals providing tips concerning insider trading before Congress passed the Dodd-Frank Act and created the Office of the Whistleblower at the SEC. The Dodd-Frank Act strengthened the program in 2010.
Although we haven’t yet seen a SEC award announcement identify a case in this area, the SEC received more than 200 tips which involved allegations of insider trading in Fiscal Year 2015. Based on the number of tips that have been provided over the course of more than five years, it seems likely that there are a few that caught the government’s attention and have led to an enforcement action.
The DOJ doesn’t have a whistleblower program that would capture tips in this area, but any DOJ criminal charges would also have a corresponding SEC civil case that could lead to its consideration as a related action. The DOJ typically works with whistleblowers through the False Claims Act.
To speak to our SEC whistleblower lawyers about this information or for an evaluation of a potential submission to the SEC, please call 1-800-590-4116.