Late last month, a Second Circuit panel did something fairly unusual: It withdrew a 2017 decision and substituted a new opinion with a new rationale (but still with the same 2-1 division on the panel). The new decision in United States v. Martoma[1] has a less sweeping and more defensible rationale, but still deviates from the law in other Circuits. In addition, it has some nuances that future cases are certain to explore.

Both the initial and the revised Martoma decisions deal with what had long seemed a footnote to the mainstream of insider trading law. Since Dirks v. SEC in 1983,[2] the mainstream doctrine has long required two preconditions before a tippee can be held liable: (1) the tipper had to breach a duty to either the company or the source of its information; and (2) the tippee had to pay or promise some “personal benefit” to the tipper–in essence, a bribe for the information. But at the very end of its Dirks decision, almost as an afterthought, the Supreme Court recognized an alternative theory: if the tipper made a gift of the information to the tippee, this could be treated as if the tipper had, itself, traded and given the proceeds to the tippee. This “gift” theory seemed intended to close a loophole, such as cases in which a CEO made gifts of inside information to his or her children.