On August 20, the Securities and Exchange Commission announced it had charged Florida-based TherapeuticsMD Inc. with Regulation FD violations stemming from alleged sharing of material non-public information with research analysts without also publicly disclosing the information, in what appears to be the first such Regulation FD enforcement case brought by the SEC in the last six years.
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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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A defendant in an insider trading case who allegedly profited from his inside knowledge recently filed a motion to dismiss in the US District Court for the District of Rhode Island to drop him from a Securities and Exchange Commission suit. The defendant tippee, Kenneth Rampino, claimed that following the recent holding in U.S. v. Newman, 773 F.3d 438 (2d Cir. 2014), the SEC unsuccessfully satisfied the requirement that it show the alleged tipper benefited in exchange for his alleged tip to Mr. Rampino, or that Mr. Rampino knew of any such benefit.
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Preet Bharara, United States Attorney for the Southern District of New York, has petitioned the United States Court of Appeals for the Second Circuit for a rehearing en banc of last month’s landmark decision vacating multiple insider trading convictions, arguing that the decision creates a new “deeply confounding” standard that splits from precedent in this and other circuits, and threatens the effective enforcement of the securities laws.
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