The complaint further alleges that Defendant Robert applied for, but did not secure, a $100,000 business loan with a lender in an attempt to cover the shortfall in January of 2021. Thereafter, the Scheme collapsed in early 2021.The complaint seeks permanent injunctive relief and disgorgement of ill-gotten gains and asserts seven claims of relief against Defendants for violations of: (i) Sections 5(a) and 5(c) of the Securities Act, 15 U.S.C. § 77e; (ii) Section 17(a)(1) of the Securities Act, 15 U.S.C. § 77q(a)(1); (iii) Section 17(a)(2) of the Securities Act, 15 U.S.C. § 77q(a)(2); (iv) Section 17(a)(3) of the Securities Act, 15 U.S.C. § 77q(a)(3); (v) Section 10(b) and Rule 10b-5(a) of the Securities Exchange Act, 15 U.S.C. § 78j(b); (vi) Section 10(b) and Rule 10b-5(b) of the Securities Exchange Act, 15 U.S.C. § 78j(b); 10b-5(b); and (vii) Section 10(b) and Rule 10b-5(c) of the Securities Exchange Act, 15 U.S.C. § 78j(b); 10b-5(c).

On July 21, 2022, the Department of Justice (DOJ) and the US Securities and Exchange Commission (SEC) each alleged insider trading violations against a former Coinbase employee, his brother, and another alleged acquaintance of his. Coinbase is one of the leading exchanges in the United States for the trading of cryptocurrencies. The DOJ brought charges of wire fraud against the three defendants in the Southern District of New York without any allegations of securities law violations, while the SEC brought a civil claim for insider trading in violation of Section 10(b) of the Securities Exchange Act of 1934 [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder in the Western District of Washington against the same three defendants.The SEC action raises questions about the state of digital asset regulation in the United States and could hamper digital asset development in the United States if there are not changes to this “regulation by enforcement” strategy by the SEC.

The information provided the timing and substance of upcoming proposed CMS rule changes (the “Information”), which the hedge funds used to short stock in certain healthcare companies that would be negatively affected by the rule change. Blaszczak and several other defendants were indicted on multiple charges, including insider trading charges brought under both Title 15 (15 U.S.C. § 78j(b)) and Title 18 (18 U.S.C. § 1348). At trial, the court refused the defendants’ request to include the personal benefit test in the jury instructions for both the Title 15 and Title 18 charges, including it only for the Title 15 instructions.

The information provided the timing and substance of upcoming proposed CMS rule changes (the “Information”), which the hedge funds used to short stock in certain healthcare companies that would be negatively affected by the rule change. Blaszczak and several other defendants were indicted on multiple charges, including insider trading charges brought under both Title 15 (15 U.S.C. § 78j(b)) and Title 18 (18 U.S.C. § 1348). At trial, the court refused the defendants’ request to include the personal benefit test in the jury instructions for both the Title 15 and Title 18 charges, including it only for the Title 15 instructions.

Id. at 452-53.15 USC. § 78j(b) (2018).17 C.F.R. § 240.10b-5 (2019).

52 Id. at 1100 (quoting 17 C.F.R. § 240.10b-5, 15 U.S.C. § 78j(b), and 15 U.S.C. § 77q(a)). 53 Id.

United States v. O’Hagan, 521 U.S. 642 (1997)The “misappropriate theory” of securities fraud involves a corporate “outsider” who violates Rule 10b-5 by misappropriating confidential information for securities trading purposes, in breach of a fiduciary duty owed to the source of the information, rather than to the persons with whom he trades. In this case, the Court holds that this conduct amounts to a criminal violation of the securities laws.United States v. Newman, 773 F.3d 438 (2d Cir. 2014)The Second Circuit announced a new standard for insider trading cases, holding that in order to support an insider trading conviction under Section 10(b) of the 1934 Act (15 U.S.C. §78j(b)), the government must prove that the tippee knew that an insider disclosed confidential information and that he did so in exchange for a personal benefit.United States v. McKye, 734 F.3d 1104 (10th Cir. 2013)Whether a particular transaction involves a “security” is a mixed question of fact and law that, pursuant to Gaudin, must be submitted to the jury to be decided under the reasonable doubt standard.

In United States v. McKye, No. 12-6108, 2013 U.S. App. LEXIS 17297 (10th Cir. Aug. 20, 2013), the United States Court of Appeals for the Tenth Circuit reversed the conviction of Brian William McKye for securities fraud in violation of Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b). The Tenth Circuit held that in a criminal action for securities fraud, the jury must be permitted to determine whether a “security” actually exists.

circuit split with respect to whether pure omissions could support a private claim under Section 10(b) and Rule 10b-5(b) in the absence of an otherwise-misleading statement. Circuit Courts in the Third, Ninth, and Eleventh Circuits previously held that a violation of Item 303’s reporting requirements did not automatically give rise to a cause of action under Rule 10b-5. The Second Circuit, however, had held plaintiffs to a lower standard, finding that a failure to disclose under Item 303 could amount to an actionable omission for a Rule 10b-5 claim. The Supreme Court’s opinion resolves the split regarding Item 303-based claims.Macquarie is good news for public companies and their officers and directors. Yet they must remain vigilant in their disclosures: as the Court cautioned, private parties can still bring claims based on Item 303 violations that create misleading statements, and the SEC retains authority to prosecute violations of its own rules and regulations, including Item 303. 15 U.S.C. § 78j(b); 17 C.F.R. § 240.10b-5(b) (2022). 17 C.F.R. § 229.303(b)(2)(ii) (2022).Macquarie Infrastructure Corp. v. Moab Partners, L.P., 601 U.S. __, 2024 WL 1588706 (2024).Id. at *4.Id. at *5.Id.Id.SeeOran v. Stafford, 226 F.3d 275 (3d Cir. 2000); In re NVIDIA Corp. Sec. Litig., 768 F.3d 1046 (9th Cir. 2014); Carvelli v. Ocwen Fin. Corp., 934 F.3d 1307 (11th Cir. 2019).[View source.]

tions, as plaintiffs will now need to identify specific misleading statements that were rendered more misleading by the omission in order to adequately plead a claim. This could potentially reduce the risk of securities litigation for companies, particularly those subject to significant regulatory disclosure requirements.However, the Court's decision does not entirely insulate defendants from liability for Item 303 violations. The SEC retains the authority to enforce these disclosure requirements, and private plaintiffs can still bring claims based on Item 303 violations that create misleading half-truths. Additionally, if a company omits an Item 303 disclosure in the context of a securities offering, such company could be subject to a claim under Section 11 of the Securities Act. Thus, companies must remain diligent in their compliance with these existing disclosure requirements.Macquarie Infrastructure Corp. v. Moab Partners, L. P., No. 22-1165, 2024 WL 1588706 (U.S. Apr. 12, 2024). 15 U. S. C. §78j(b). 17 CFR §240.10b-5(b). 17 CFR §229.303(b)(2)(ii).City of Riviera Beach Gen. Emps. Ret. Sys. v. Macquarie Infrastructure Corp., No. 18-CV-3608, 2021 WL 4084572, at *1 (S.D.N.Y. Sept. 7, 2021), vacated and remanded sub nom.Moab Partners, L.P. v. Macquarie Infrastructure Corp., No. 21-2524, 2022 WL 17815767 (2d Cir. Dec. 20, 2022), vacated and remanded, No. 22-1165, 2024 WL 1588706 (U.S. Apr. 12, 2024).Moab Partners, L.P. v. Macquarie Infrastructure Corp., No. 21-2524, 2022 WL 17815767, at *1 (2d Cir. Dec. 20, 2022), cert. granted, 144 S. Ct. 479 (2023), vacated and remanded, No. 22-1165, 2024 WL 1588706 (U.S. Apr. 12, 2024).See, e.g., Oran v. Stafford, 226 F.3d 275, 287–88 (3d Cir. 2000); In re NVIDIA Sec. Litig., 768 F.3d 1046, 1054–56 (9th Cir. 2014); Carvelli v. Ocwen Fin. Corp., 934 F.3d 1307, 1331 (11th Cir. 2019).Macquarie Infrastructure Corp., No. 22-1165, 2024 WL 1588706, at *4.Id.Id.Id.Id. at *5.Id.Id.Id.Id.Id.