Document Type


Publication Date



In United States v. Newman, the Second Circuit overturned the insider trading convictions of two hedge fund managers who received material nonpublic information from public companies via an extended tipping chain. The Newman court interpreted the Supreme Court's decision in Dirks v. SEC as requiring that the government prove: (1) that the tippee knew that the tipper was disclosing the information in exchange for a personal benefit; and (2) that if the personal benefit does not involve a quid pro quo to the tipper, that the disclosure arise from a "meaningfully close personal relationship" with the recipient of the information. The U.S. Attorney and the SEC reacted sharply to Newman, decrying it as a departure from Dirks. This essay traces the "judicial history" of Dirks' personal benefit requirement. Based on that history, I conclude that Newman's knowledge standard is the correct reading of Dirks and that its requirement of a "meaningfully close personal relationship" is consistent with, if not compelled by, the rule laid down in Dirks.