On May 24, 2017, the U.S. Attorney’s Office for the Southern District of New York (USAO) and the Securities Exchange Commission (SEC) announced parallel insider trading charges against a Washington, D.C.-based “political intelligence” consultant, the government employee who had been his alleged source of inside information, and three hedge fund analysts whom he tipped. One of the analysts pled guilty earlier in the month and is cooperating with the government.1 The case marks the second time the government has brought insider trading charges against a “political intelligence” consultant. But the case is significant for another reason. An analysis of the alleged “benefit” to the tipper shows that there are notable similarities to facts in United States v. Newman, 773 F.3d 438 (2d Cir. 2014), which signals that the government is confident that the recent Supreme Court decision in Salman v. United States has overruled the Second Circuit’s personal benefit holding in Newman in its entirety. On a practical note, the case also underscores the need for investment professionals who rely on political intelligence firms to monitor the source of the information they receive from those firms and to assess carefully any potentially material nonpublic information emanating from government agencies before trading.
The Benefit to the Tippers in ‘Blaszczak’ and ‘Newman’ Compared. The government alleged that David Blaszczak, a former employee at the Centers for Medicare & Medicaid Services (CMS) turned consultant for various “political intelligence” firms, obtained information from a former CMS colleague, Chris Worrall. Worrall, who had access to CMS’s confidential deliberations about unannounced and potentially market-moving reimbursement decisions, allegedly divulged to Blaszczak that the CMS planned (1) to cut reimbursable treatment times for two cancer procedures, and (2) to cut reimbursement rates for various kidney dialysis treatments, services and drugs by 12 percent. Blaszczak, in turn, passed the information to the hedge fund analysts, who caused their hedge fund to sell short based on the information.
