Locke Lord QuickStudy: Notable Insider Trading Decision Remanded by Supreme Court in Light ‎of Bridgegate Ruling

On December 30, 2019, the Second Circuit issued a ruling in U.S. v. Blaszczak, 947 F.3d ‎‎19 (2d Cir. 2019). In Blaszczak, a former Medicare official gave tips to analysts on changes to ‎government reimbursement rates that he received from former government colleagues. The ‎Second Circuit held that the government had a proprietary right to keep the rates confidential ‎and, thus, this non-public information could be considered “property” under the Title 18 ‎securities and wire fraud statutes. In our January 23, 2020 QuickStudy discussing this ruling, we ‎pointed out that the Blaszczak decision would likely make it easier for federal prosecutors to ‎pursue insider trading charges.‎

On January 11, 2021, the Supreme Court vacated and remanded the Blaszczak case for ‎further consideration in light of the Court’s May 2020 ruling in U.S. v. Kelly, No. 18-1059 ‎‎(2020). In U.S. v. Kelly, the Supreme Court reversed the Third Circuit’s conviction of New Jersey ‎officials for wire fraud in conjunction with their role in the 2013 “Bridgegate” scandal. The ‎Court found that the scheme did not constitute wire fraud because the officials’ goal was not to ‎obtain money or property. The officials’ realignment of lanes on the George Washington Bridge ‎for a traffic study was an exercise of their regulatory authority, which did not implicate the ‎government’s role as a “property holder.” Further, the officials’ use of Port Authority employees ‎to staff the bridge was not the object of their fraud, but rather, an incidental consequence of the ‎scheme. Thus, although the officials likely abused their power, the Court concluded that they did ‎not violate the wire fraud statute.‎

The defendants in Blaszczak are now challenging their convictions for wire fraud and ‎securities fraud, arguing that the Second Circuit’s ruling conflicts with the Supreme Court’s ‎definition of “property” in Kelly, which narrowed the types of government information that are ‎considered “property” for purposes of the Title 18 securities and wire fraud statutes. The holding ‎in Kelly is consistent with Judge Kearse’s dissent in Blaszczak, which argued that Medicare ‎reimbursement rates were not a “thing of value” for purposes of the Title 18 statutes because the ‎government is not a business and did not seek to profit from the information. Therefore, in light ‎of Kelly, it seems likely that the Second Circuit will overturn the “property” portion of Blaszczak. ‎It will be important to watch how the Second Circuit rules on this issue, as it may further limit ‎the types of cases prosecutors can bring under the Title 18 securities and wire fraud statutes in ‎the future.‎