SEC Panelists Comment on Insider Trading, Whistle-Blowers

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By Susan Bokermann

Feb. 17 — “Too often prosecutorial discretion means trying to go after headlines,” said Paul S. Atkins discussing the implications of the recent Newman decision at the annual Practising Law Institute's “SEC Speaks” conference Feb. 21.

Atkins, former Securities and Exchange commissioner and current CEO at Patomak Global Partners, was responding to the question of how prosecutorial discretion plays a role in insider trading cases. He said that the Securities and Exchange Act of 1934 §10b-5, which prohibits any act or omission resulting in fraud or deceit in connection with the purchase or sale of any security, “exists to render justice and not get splashy headlines.”

The panel discussed a number of recent judicial developments relating to insider trading and whistle-blowers.

Confusing Standard

The Dec. 10 Newman decision vacated the convictions of former hedge fund executives Anthony Chiasson and Todd Newman. The appeals court ruled that to sustain an insider trading conviction, the government must prove beyond a reasonable doubt that the tippee knew that an insider disclosed confidential information and that he did so in exchange for a personal benefit.

This standard creates some problems for the SEC, said Michael A. Conley, deputy general counsel at the SEC. He said that there are three troublesome outcomes from Newman. First, it is a departure from other jurisdictions; secondly, it sets a “confusing standard”; and lastly it presents problems for SEC enforcement.

He noted that while the SEC will continue to bring insider trading cases, they will just have to work within this new framework.

Conley's statement echoed what SEC Enforcement Division Director Andrew Ceresney had already stated—the the SEC will look at the impact of Newman on a particular case, but it won't impact the Commission's ability to bring insider cases.

The panelists also touched on whistle-blower developments during the last year. Richard M. Humes, SEC associate general counsel, highlighted the Lawson decision, interpreting § 806 of the Sarbanes-Oxley Act to protect an employee of a privately-held contractor or subcontractor of a public company from retaliation (Lawson v. FMR LLC, 134 S. Ct. 1158 (2014)). Humes explained the concerns surrounding the “nanny hypothetical” raised in Justice Sotomayor's dissent, namely that the Court's decision holds that the law encompasses any household employee who works for a public company, or any employee of a private business that contracts to perform work for a public company.

The Court's majority reasoned that the prospect of such persons filing complaints are “unlikely.”

William K. Shirey, SEC assistant general counsel, briefly discussed the scope of § 21F of the '34 Act. This section, known as the whistle-blower program, encourages whistle-blowers by authorizing awards and providing retaliation protection. Specifically, Shirey pointed out the ambiguity in whether a whistle-blower needs to report to the commission before reporting internally.

Shirey noted that “the Commission has been very active in this field” by filing various amicus briefs and attempting to “demonstrate where the ambiguity is in § 21F, ” and advocating for a broad interpretation of awarding whistle-blowers who may report internally before turning to the commission.

He noted that a majority of the courts have followed the commission's interpretation of these ambiguities.

Atkins said that “the problem with the entire Dodd-Frank whistle-blowing program is the lack of transparency.”

To contact the reporter on this story: Susan Bokermann in Washington at

To contact the editor responsible for this story: Kristyn Hyland at


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