Whistleblowing is the ultimate form of burning your bridges. So it comes as no surprise that while whistleblowers are lauded for their courage and willingness to call out their companies for material financial wrongdoing, the celebration pales in comparison to the common risks they face from their current and future employers. Whistleblowers are often mishandled, ignored, and their allegations lead to job terminations and being blacklisted from other prospective companies in the industry. In response, a new group seeks to change this recurring story.
Reinforcements Arrive for Whistleblowers in Financial Services
In The Peak Of A Hedge Fund Asset Crisis, The Supreme Court Might Have Just “Broke The Camel’s Back” For Investor Confidence In Hedge Funds
The Supreme Court rejected the petition for certiorari in United States v. Newman last month—a case about insider trading. In so doing it reaffirmed the Second Circuit Court of Appeals’ decision, which held that liability for insider trading requires proof of (1) that the discloser received a personal benefit, and (2) that the person receiving the information (“tippee”) knew about that benefit. This position not only troubles prosecutors in current insider trading cases and investigations, but is also likely to intensify the current hedge fund asset crisis by calling the credibility of the whole system into question among investors.
In a jury trial in the Southern District of New York, federal prosecutors presented evidence that Todd Newman and Anthony Chiasson (among others) were involved in insider trading. Pursuant to the evidence, it was found that these hedge fund managers received financial information from insiders about Dell and NVIDIA before that information was made available to the public—allowing them to earn millions of dollars in trades during the 2008 fiscal year. Accordingly, they were convicted in 2013 for conspiracy to commit insider trading.
Can You Hear Me Now? Appeals Court Permits Bulk Collection of Metadata for One More Month
In a narrow ruling last week, a federal appeals court declined to enjoin the National Security Agency (NSA) from the bulk collection of metadata on domestic phone conversations. Controversy has dogged the once-secret bulk collection program since its existence was first revealed by Edward Snowden. Earlier this year, the same three-judge panel of the United States Court of Appeals for the Second Circuit had ruled that bulk collection fell outside the ambit of the USA PATRIOT Act. Amid heated debate this summer, Congress enacted companion legislation, the USA Freedom Act, which sought a groundwork for an alternative phone records program and proscribed bulk collection after a “transition period” of 180 days.
Although the federal government had obtained permission from the Foreign Intelligence Surveillance Court to operate the bulk collection program for the duration of this transition period, the American Civil Liberties Union (ACLU) sought injunctive relief against the N.S.A. on the theory that bulk collection violates the Fourth Amendment of the United States Constitution. In declining to intervene, the Second Circuit also punted on this constitutional question, suggesting that it would be unwise to address such a complex and weighty topic for the sake of a transition period that is, by definition, finite.
Administrative Judge Raises S.E.C’s Burden to Convict Insider Trader
In a pivotal 1983 ruling, the Supreme Court held that to find a breach of duty to stockholders resulting in “insider trading,” a party must prove that a personal gain, either material or immaterial, resulted from confidential information provided by a trading relative or “friend.” The Court, however, left ambiguous the term, “friend” for over three decades, causing much confusion. Did the Court intend to mean a close friend? A friend with whom you occasionally converse? A Facebook friend?
Recently, Judge Patil provided some context, although controversial, to this central term in a S.E.C. administrative decision, by dismissing insider trading charges against Joseph Ruggieri, a former securities trader at Wells Fargo. At issue in the case was the question of how close a non-familial relationship must be to qualify as “meaningfully close.” Ruggieri mentored Gregory Bolan, a Wells Fargo analyst, and allegedly profited approximately $117,000 from tips received from Bolan. In order to have succeeded, the Department of Justice needed to prove that benefits Bolan received from the mentorship and feedback was substantial enough to qualify their relationship as meaningfully close. The Department of Justice argued that mere friendship was enough to establish the benefit. In his decision, however, judge Patil disagreed, holding that the benefit received by the mentorship was insufficient.
Second Circuit Upholds Credit Card Surcharges in New York State
On September 29, 2015, the U.S. Court of Appeals for the Second Circuit upheld New York General Business Law §518, effectively reviving a ban on retailer-imposed surcharges against credit card users. In a 3-0 decision, the appellate court judges overturned a ruling from the Southern District of New York that described the law as “incomprehensible,” determining that it violated neither the First Amendment nor the Due Process Clause of the Fourteenth Amendment.
Barring an effective appeal to the U.S. Supreme Court, retailers will now be subject to criminal penalties if they attempt to impose surcharges on customers paying with plastic. The maximum penalties include up to one year in prison and a $500 fine for merchants found to be in violation of the law.
Second Circuit Affirms Apple’s E-Book Antitrust Violations
The United States Court of Appeals for the Second Circuit affirmed a 2013 United States District Court decision that held that Apple “orchestrated” an illegal conspiracy with book publishers to raise prices on e-books. The Second Circuit held that the conspiracy “unreasonably restrained trade.” The three-judge panel reached a 2-1 split decision.
The Justice Department and state attorneys general initially brought the action against Apple in 2012. Apple’s decision to force a trial in the case has been framed in the media as a “bold decision.” In contrast, the book publishers named in the case settled with the Justice Department, states, and private plaintiffs shortly after the suit was brought. (more…)