In Blaszczak v. United States, 947 F.3d 19 (2d Cir. 2019), federal prosecutors won two notable victories, expanding the scope of the insider trading prohibition. As of today, they have abandoned one of those victories; the other is in a state of uncertainty, and the scope of insider trading law remains unresolved. Nor is it likely that the Second Circuit’s decision on remand in Blaszczak will resolve the most important open issue. The case for a legislative resolution of the issue thus grows stronger, and passage of a revised insider trading law is now feasible in view of the Democrats’ razor-thin majority in the Senate (and the fact that few Republicans have any strong desire to appear protective of insider trading).
Blaszczak was far from a plain vanilla insider trading case. The key defendant—David Blaszczak—was a political intelligence consultant and former employee of the Centers for Medicare & Medicaid services (CMS), and he clearly had unique access to CMS’s plans. Hedge funds used him to obtain confidential information about CMS’s proposed rule changes, which could significantly impact the stock price of medical products companies. For example, one hedge fund (Deerfield Management Company) in Blaszczak shorted the stock of a radiation device manufacturer (Varian Medical Systems) to the extent of $33 million (and profited to the extent of $2.76 million), based on information that it learned through Blaszczak about proposed rule changes that would reduce allowable reimbursements. This was not a small-time operation.
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