Key takeaways

• In a landmark decision providing much needed clarity as to the contours of remote tippee liability for insider trading actions, the Second Circuit Court of Appeals yesterday ruled that a tippee must know that an insider disclosed confidential information in exchange for a personal benefit.
• The Court also ruled that while a personal benefit may be inferred from a personal relationship between the tipper and tippee, such an inference can only be established by proof of a “meaningfully close personal relationship” where the exchange of the personal benefit is “objective, consequential and represents at least a potential gain of a pecuniary or similarly valuable nature.”

• This decision brings into question the government’s ability to bring large-scale criminal or civil insider trading cases with tippees that are far removed from the inside tipper.