On December 29, 2022, in a closely-watched insider trading case, the Second Circuit decided United States v. Blaszczak (“Blaszczak II”).[1] The Supreme Court in January 2021 had vacated and remanded the Second Circuit’s prior decision in light of Kelly v. United States (also known as the “Bridgegate” decision). On remand, a divided panel of the Second Circuit found that trading on the basis of certain confidential government information related to pending regulation does not give rise to violations of the criminal wire fraud and securities fraud statutes.
Priorities, Trends and Developments in Enforcement and Compliance
2021 was a year of transition for white-collar criminal and regulatory enforcement. As courthouses reopened and trials resumed, newly-installed heads of law enforcement authorities looked to reset priorities and ramp up enforcement in the first year of the Biden administration.
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First Circuit Upholds Border Searches of Electronic Devices Without Probable Cause
In a decision with potentially far-reaching implications, Alasaad v. Mayorkas, Nos. 20-1077, 20-1081, 2021 WL 521570 (1st Cir. Feb. 9, 2021), the First Circuit recently rejected First and Fourth Amendment challenges to the U.S. government agency policies governing border searches of electronic devices. These policies permit so-called “basic” manual searches of electronic devices without any articulable suspicion, requiring reasonable suspicion only when officers perform “advanced” searches that use external equipment to review, copy, or analyze a device. The First Circuit held that even these “advanced” searches require neither probable cause nor a warrant, and it split with the Ninth Circuit in holding that searches need not be limited to searches for contraband, but may also be used to search for evidence of contraband or evidence of other illegal activity. This decision implicates several takeaways for company executives entering and leaving the United States, particularly if they or their employers are under active investigation. In-house counsel in particular should consider the implications of the decision given obligations of lawyers to protect the confidentiality of attorney-client privileged information.
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Second Circuit: Criminal Fraud Statutes Do Not Require Prosecutors to Show that Tippers in Insider-Trading Cases Received a “Personal Benefit”
The Second Circuit has made it easier for federal prosecutors to bring insider-trading cases. In United States v. Blaszczak, decided on December 30, 2019, the Court held that the personal-benefit test—a judge-made rule that the government must prove a tipper expected to receive some benefit in exchange for disclosing confidential information—does not apply to
SDNY Judge Finds Government “Outsourcing” of Investigation to External Counsel Runs Afoul of Fifth Amendment
On May 2, 2019, the United States District Court for the Southern District of New York issued an important decision delineating the boundaries between conducting a proper internal investigation and acting as an arm of the government.
For the government, the consequences of “outsourcing” an investigation to a company and its counsel could be exclusion
Supreme Court Finds Rule 10b-5’s “Scheme Liability” Provisions Reach Use of False Statement
On March 27, 2019, the Supreme Court issued a 6-to-2 decision in Lorenzo v. SEC focusing on the distinction between “making” a false statement under Exchange Act Rule 10b-5(b) and engaging in deceptive conduct—so-called “scheme liability”—under Rules 10b-5(a) and (c).
The Court upheld a D.C. Circuit majority decision concluding that the SEC could hold an
District Court Acquits Barclays FX Trader of Fraud Charges
On March 4, a federal judge of the Northern District of California granted a directed verdict motion in favor of Robert Bogucki, the former head of Barclays’ foreign exchange (“FX”) trading desk. Bogucki went to trial on charges that he had engaged in a “front-running” scheme to manipulate the FX options market in advance of a client’s corporate transaction. Following the government’s presentation of its case at trial, Judge Charles Breyer acquitted Bogucki, finding that the government had failed to present sufficient evidence such that a reasonable jury could find Bogucki guilty of any fraud charges beyond a reasonable doubt.
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U.S. Criminal Prosecution Based on Panama Papers Hack Raises Novel Legal Issues
Nearly a decade ago, WikiLeaks ushered in the age of mass leaks. Since then, corporations, governments, public figures and private entities have increasingly had to reckon with a new reality: that vigilantes, activists, extortionists and even state actors can silently steal and rapidly disseminate proprietary information, including customer data and other sensitive information. Last month, the Department of Justice (“DOJ”) indicted four individuals based on information first revealed in the “Panama Papers” leak. This marks a significant milestone in law enforcement’s reliance on evidence based on an unauthorized mass leak of information. While leaks and hacks are not a novel phenomenon—in 1971, the New York Times published top secret documents on the Vietnam War and, in 1994, a paralegal leaked tobacco industry documents that ultimately cost the industry billions of dollars in litigation and settlement costs—the frequency, scale and ease of dissemination of leaked information today presents a difference not only of degree, but of kind. The new Panama Papers-based criminal case will likely raise a host of novel legal issues based on legal challenges to the DOJ’s reliance on information illegally obtained by a third party, as well as information that would ordinarily be protected by the attorney-client privilege. In this memorandum, we discuss the potential issues raised by the prosecution and their implications.
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District Court Rules That Where Bids Have an Underlying Legitimate Economic Rationale, Intent to Affect Prices Is Insufficient to Establish Market Manipulation
On November 30, 2018, Judge Richard Sullivan issued a long-anticipated decision in favor of the defendants in Commodity Futures Trading Commission v. Wilson, No. 13 Civ. 7884, following a four-day bench trial in December 2016 before the U.S. District Court for the Southern District of New York. The court held that the CFTC failed