Securities Litigation

In an unusual three-page concurrence to a November 10 cert denial, Justice Scalia (joined by Justice Thomas) virtually called for a case that would subject the SEC's insider-trading interpretations to scrutiny. Because courts owe no deference to a prosecutor's interpretation of a criminal law, asked Scalia, then why should they owe Chevron deference to an executive agency's interpretation of a law [like '34 Act § 10(b)] that's enforced both criminally and administratively? Scalia also criticized deferring to the SEC's expansive insider-trading theory in the case as turning "normal [statutory] construction … upside-down, replacing the doctrine of lenity with a doctrine of severity." The case presented a "poor setting in which to reach the question," so Scalia concurred in the cert denial, noting that when the right one comes along, "I will be receptive to granting it." Whitman v. United States, 574 U.S. ___ (2014)(No. 14-29, Nov. 10, 2014), here (the briefing is here). This "call for a case" comes as the Second Circuit is poised to decide whether a downstream tippee must have knowledge of the tipper's personal benefit (giving rise to the breach of duty) or merely that the information once had been confidential. That issue was argued last April and remains under consideration in the consolidated cases, United States v. Newman, No. 13-1837 (2^nd Cir.) and United States v. Chiasson, No. 13-1917 (2^nd Cir.). During oral argument, the appellate panel reportedly was hostile to the government's theory that a tippee need not know of that a tipper received a personal benefit from the disclosure of confidential information. See, e.g., SEC v. Obus, 693 F. 3d 276, 289 (2^nd Cir. 2012)(seeming to suggest tippee need not know of tipper's benefit). Thomas K. Potter, III (tpotter@burr.com) is a partner in the Securities Litigation Practice Group at Burr & Forman, LLP. Managing Partner of the Nashville office, Tom is licensed in Tennessee, Texas and Louisiana. He has over 28 years' experience representing financial institutions in litigation, regulatory and compliance matters. © 2014 by Thomas K. Potter, III (all rights reserved)