California DOJ Takes Advantage of “Lower” Insider Trading Standard

The Los Angeles U.S. Attorney has brought charges against a former J.P. Morgan analyst and two of his friends alleging that the analyst tipped deal information he learned while at the bank to his friends.

Ashish Aggarwal, 27, of San Francisco, and two longtime friends surrendered to the FBI Tuesday, after being charged with a scheme that netted over $600,000 due to stock tips. While interesting in and of itself, this case is nationally significant because it appears to be the first use of the Ninth Circuit’s “lower” standard for remote tippee liability under the Salman decision issued on July 6, 2015.

One of the elements of tippee liability is that there be a “personal benefit” to the tipper (here, Aggarwal).   In Salman, the Court found that the personal benefit to the tipper can occur where an “insider makes a gift of confidential information to a trading relative or friend.” That is exactly what is alleged in the Aggarwal case: Aggarwal tipped his boyhood friends.

By contrast, the Second Circuit, in U.S. v. Newman (December 2014) found that the benefit must represent, “at least a potential gain of a pecuniary or similarly valuable nature.” The Court vacated the underlying convictions and the decision has spawned multiple challenges across the country.

Because of Newman’s significance to the Government’s entire insider trading campaign, the Solicitor General, on July 31, 2015, sought review by the Supreme Court. The Court will likely decide in October whether to hear the Newman appeal. Among other things, the Court will look at the Salman decision to determine whether there is a circuit split on these issues.

In the meantime, it is likely that the Aggarwal case will proceed in California, though there will likely be some motion practice seeking a stay pending the outcome in Newman. Here is an article summarizing the charges.


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