U.S. Supreme Court Tips the Scales in Favor of Prosecutors in Insider Trading Cases

On December 6, 2016, the U.S. Supreme Court issued its long-awaited ruling in Salman v. United States. In a unanimous opinion, the Supreme Court adhered to its 1983 decision in Dirks v. SEC, 463 U.S. 646, and held that a tippee is liable for trading on inside information when the tipper “personally will benefit directly, or indirectly, from his disclosure.” The Supreme Court in Salman agreed with the Ninth Circuit’s interpretation of Dirks, holding that the tipper “personally benefitted from making a gift of confidential information to a trading relative.” In such a situation, the Court found a tipper benefits personally because his gift of trading information to a relative or friend is equivalent to if he traded on the information himself and gifted the proceeds. This ruling will likely serve to increase federal insider trading prosecutions, specifically where the insider has not received a tangible monetary or pecuniary benefit as a quid pro quo for sharing inside information with a friend or relative.

Salmon addressed the circuit split that has been plaguing insider trading jurisprudence since the Second Circuit’s 2014 ruling in United States v. Newman, 773 F.3d 438, which we wrote about here. Specifically, the Salman Court rejected as inconsistent with Dirks the Second Circuit’s finding that liability depends upon the tipper having received something of a “pecuniary or similarly valuable nature” in exchange for a gift to a trading relative; however, the Salman decision did not implicate the portion of the Newman opinion requiring evidence of the tippee’s knowledge that the information on which they traded “came from insiders or insiders received a personal benefit in exchange for the tips.”

The Salman decision walks back some of the significant advantages that the Second Circuit’s Newman opinion conferred on insider trading defendants. By reasserting its decision in Dirks that a jury may infer that a tipper personally benefits from providing a gift of non-public information to a trading relative, the Court has lifted the burden on prosecutors to prove that a tipper has received a tangible pecuniary benefit in exchange for relaying confidential information. This will likely have a significant effect on insider trading defenses for all tippees where there is no obvious or tangible pecuniary gain to the tipper.

North Korea Facing New Wave of International Trade Sanctions

As a direct result of nuclear and ballistic weapons tests conducted by the Democratic Peoples’ Republic of North Korea earlier this year, the United Nations, the European Union and the United States imposed increased sanctions against the country.  These new restrictions affect various industries, including minerals, energy, shipping, banking, finance, and aviation.

In keeping with Reed Smith’s continued efforts to keep clients abreast of the latest global developments in sanctions enforcement, the firm recently issued a client alert that details the various actions taken against North Korea.  For more information on this topic, and an understanding of how your business may be affected, please click here.

Acquisition of Some Non-TAA-Compliant Drugs to be Permitted by Veterans Affairs

The Department of Veterans Affairs recently announced that it will now require all covered drugs under the Veterans Health Care Act to be offered on Federal Supply Schedule contracts, regardless of whether they meet the “country of origin” standards of the Trade Agreements Act. This decision represents a major reversal in policy for the VA.  The policy is being implemented immediately, requiring action for many companies as soon as April 26, 2016.  For the first time, FSS contracts will now be open to hundreds of pharmaceutical products that are manufactured in non-TAA designated countries.

For more information on this topic, please click here.

OCC’s White Paper Addresses Responsiveness to FinTech Innovation

On March 31, 2016, the Office of the Comptroller of the Currency (“OCC”) issued its much-anticipated white paper on the growing intersection between financial services and technology, or “FinTech.”  In this white paper, the OCC outlines steps that it is considering to make the agency more receptive to what it deems “responsible innovation.”  From internal training programs, to making examination, legal, and information technology staff available for consults with the industry, to providing a forum for reporting on innovation success stories, the OCC appears willing to embrace the synergies that may result from the collaboration of banks and technology firms.  The OCC cautions however that banks, in selecting their tech partners, must still consider some of the risks that are inherent in any third-party relationship.  The OCC is also soliciting comments on a number of questions regarding regulation of FinTech.

For more information on this topic, please click here.

The Latest on Cuban Sanctions

Reed Smith has been closely monitoring developments in U.S.-Cuba relations.  With President Obama’s historic visit to Cuba in the books, we invite you to take a closer look at some recent amendments that were made to Cuban Assets Control Regulations (CACR) and Export Administration Regulations (EAR).  These changes provide significant benefits in the travel, shipping, finance, humanitarian and educational sectors.

For more information on this topic, please click here.

OCC Increases Focus on Internal Risk Management and Personal Liability of Bankers

The Office of the Comptroller of the Currency (“OCC”), the primary federal regulator for most large banks, recently issued a new policy on agency enforcement actions seeking civil money penalties (“CMPs”) against institutions and individuals.  There are several key developments that will directly affect institutions and the directors, officers, employees, major shareholders, and vendors associated with them.  These developments include a shift in the weight that the OCC will accord certain aggravating and mitigating factors when determining whether to bring a CMP action and how much of a penalty the OCC will seek, increased expectations for maintaining a robust internal compliance program, and a possible increase in CMP actions brought against specific insiders associated with an institution.

For more information on this topic, please click here.

Competition Authorities Focus On The Retail Sector

Competition authorities at both European and national levels are turning their attention to markets affecting the retail sector. The shift in focus is illustrated by the recent inquiries by the European Commission into e-commerce and by the UK Competition and Markets Authority (CMA) into the modelling agencies sector, in an effort to discover instances of outright price-fixing, resale price maintenance and restrictions on sales. Typically, sector inquiries are followed by individual investigations, so it is essential that retailers keep an eye on these investigations as they arise.

For more information on this topic, please click here.

Sweeping Changes on the Horizon for French Bribery and Anti-Corruption Law

After being called upon by the Organisation for Economic Co-operation and Development to strengthen its anti-corruption efforts, France recently examined draft legislation which would do exactly that.  While discussions before the French Parliament are not expected to begin for a few months, the implications of this legislation are expansive, and represent a revolution in French anti-corruption law.

Key points of the drafted legislation include:

  • Creation of a proper anti-corruption national agency
  • Mandatory requirement of implementation of a compliance program
  • Implementation of French Sunshine Act requirements
  • A true legal status for whistle-blowers
  • Possibility of signing off-setting agreements in case of prosecution
  • A dissuasive fining arsenal
  • Applicability of the French law to bribery offence committed in foreign countries

For more information on this topic, please click here.

Cuban Relations with the United States: Further Amendments to Export and Travel Policy

In keeping with the continued efforts of the White House to re-establish diplomatic relations with Cuba, the United States recently modified its stance on travel to Cuba and eased certain export restrictions.  Reed Smith’s International Trade & National Security team has authored a client alert that summarizes the policy amendments, and explains the implications for businesses and investors engaging in business with Cuba.

For more information on this topic, please click here.

The Supreme Court’s Recent Confirmation that Yearsley Derivative Sovereign Immunity Extends Beyond Public Works Projects

On January 20, 2016, the Supreme Court clarified the scope of “Yearsley immunity” – a form of derivative sovereign immunity available to qualifying government contractors – in its decision in Campbell-Ewald Co. v. Gomez. Until two weeks ago, many courts had misconstrued the Supreme Court’s 1940 decision, Yearsley v. W.A. Ross Const. Co., 309 U.S. 18, 60 S. Ct. 413 (1940), and held its immunity protected only those government contractors sued in connection with their work on public works projects. The Supreme Court in Gomez, however, confirmed that the Yearsley immunity defense applies so long as the contractor can demonstrate it complied with the government’s specifications regardless of whether the subject matter of the contract involved public works. Continue Reading

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