Few areas of the law are in greater need of clear judicial guidance than insider trading, and tipper-tippee liability occupies perhaps the haziest corner of insider trading law. For fund managers, avoiding tipper-tippee liability involves asking questions without clear answers: Is this information material nonpublic information? Did the source violate a fiduciary duty by providing the information? Did the source get a “personal benefit” in exchange for the information? Over the years, courts have tried – but largely failed – to offer meaningful guidance. In U.S. v. Chow
, the Second Circuit had another chance to clarify those lingering uncertainties. By affirming Benjamin Chow’s conviction for insider trading, however, the court arguably injected more uncertainty into the already fuzzy doctrine. Of note, the court’s opinion muddied the standard for assessing whether the alleged tipper had a fiduciary duty to the issuer, what counts as a breach of that duty and what sort of personal benefit the tipper must receive to trigger liability. In a guest article, MoloLamken attorneys Justin V. Shur, Jessica Ortiz and Kenneth Notter analyze what Chow
means for tipper-tippee liability, what the risks facing private fund managers are and what practices managers can adopt to mitigate those risks. For additional commentary on insider trading by Shur, see “Although Martoma May Have Been Put to Rest, the Debate Over the ‘Personal Benefit’ Test Continues
” (Sep. 6. 2018).