In United States vs. Martoma, issued on August 23, the Second Circuit reexamined its standard for evaluating liability for insider trading under Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5. In particular, the Second Circuit clarified the personal benefit requirement for a finding of tippee liability. A tippee violates Section 10(b) and Rule 10b-5 when he or she makes a purchase or sale based on material, nonpublic information received from a tipper, such as a corporate insider, where the tippee knew or should have known that the tipper breached a fiduciary duty, and where the tipper received a personal benefit from the disclosure.
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