Narrower Insider Trading Definition Challenges Prosecutors

Prosecutors are being challenged by the newly-narrowed definition of “insider trading” put forth by an the Second Circuit Court of Appeals in December. Defendants in California and Massachusetts are invoking the ruling—currently legally binding only in New York, Connecticut, and Vermont—which could lead to broader adoption. In its ruling, the Second Circuit’s three-judge panel found that to make an insider trading case, prosecutors must prove that a trader knew the original source of a tip was benefitting from leaking information. Last week Preet Bharara, the U.S. Attorney in Manhattan who has charged 92 people with insider trading since October 2009, asked the court to reconsider the ruling.