The U.S. Supreme Court established the “personal benefit” test in Dirks v. SEC to determine whether a tippee assumed a fiduciary duty to not trade based on or disclose inside information when a tipper breached his or her fiduciary duty by improperly disclosing such information to the tippee. Under the personal benefit test, a tipper breaches his or her fiduciary duty if the tipper derives a personal benefit, either directly or indirectly, from disclosing the inside information to a tippee. The Supreme Court provided examples as to what constitutes a personal benefit, such as the tipper’s expectation of reputational benefits that will lead to future profits, receiving a quid pro quo from the tippee, or providing inside information as a gift to a relative or friend. However, the examples provided in Dirks were too broad and left other courts without a definitive answer as to how to identify a personal benefit. The Second Circuit and the Supreme Court attempted to refine the application of the Dirks personal benefit test in United States v. Newman, Salman v. United States, and United States v. Martoma. This line of cases culminated in the Second Circuit’s recent decision in United States v. Blaszczak in which the Second Circuit declined to apply the Dirks personal benefit test to securities fraud and insider trading claims brought under Title 18 of the federal criminal code. This Comment discusses the origins of insider trading law in the United States and the subsequent development of the Dirks personal benefit test, examines the effects of the Second Circuit’s decision in Blaszczak on insider trading law, and recommends how the body of insider trading law can move forward following Blaszczak.
Cite as: Curtis A. French, Friends Without Benefits: Criminal Insider Trading Liability and the “Personal Benefit” Test After Blaszczak, 112 J. Crim. L. & Criminology Online 135 (2022).