## Facts

- Mathew Martoma, a portfolio manager at CR Intrinsic (an SAC Capital affiliate), traded securities of Elan Corp. and Wyeth based on confidential clinical-trial information about an Alzheimer’s drug.
- Martoma obtained the information through paid consultations with Dr. Sidney Gilman, a physician on the clinical trial team who owed duties of confidentiality.
- Gilman provided detailed negative trial data before it became public.
- The next trading day, Martoma’s fund reduced long positions and sold short, producing substantial gains and avoided losses once the information was publicly released.
- A federal jury in the Southern District of New York convicted Martoma of conspiracy to commit securities fraud and two counts of securities fraud.
- The district court’s jury instruction permitted finding the tipper’s personal benefit if the tip was made with intent to benefit the tipper, intent to benefit Martoma, or as a gift to develop a friendship with Martoma.

## Issues

1. Whether the district court’s “personal benefit” instruction misstated the law governing tipper-tippee insider trading liability.
2. Whether the evidence was sufficient to prove the tipper’s personal benefit under the governing standard.
3. Whether any instructional error warranted reversal under plain-error review.

## Decision

- The Second Circuit affirmed the convictions in an amended opinion.
- The court held that, after intervening Supreme Court authority, personal benefit may be shown by either a quid pro quo between tipper and tippee or disclosure with the intent to benefit the tippee.
- The court concluded that any instructional error was not plain and, regardless, did not affect substantial rights given overwhelming evidence of a financial benefit to at least one tipper.
- The court rejected the sufficiency challenge, finding a rational juror could infer personal benefit from the compensated consulting relationship and the nature of the disclosures.

## Legal Principles

- A tippee is liable for insider trading when an insider breaches a duty by disclosing material nonpublic information for personal benefit and the tippee knows or should know of the breach.
- Personal benefit can be established by proof of a quid pro quo exchange (including financial or reputational gain) or by proof that the insider disclosed information with the intention to benefit the tippee.
- A “meaningfully close personal relationship” is not an independent prerequisite to proving personal benefit on a gift/intent-to-benefit theory.
- Under plain-error review, a conviction will not be reversed absent an error that is clear and affects substantial rights; overwhelming evidence of personal benefit defeats relief.

## Conclusion

The court upheld Martoma’s insider-trading convictions and clarified that the personal-benefit element is satisfied by either a quid pro quo or an insider’s intent to benefit the tippee, without requiring proof of a meaningfully close relationship, and that paid consulting arrangements can strongly support an inference of personal benefit.


United States v. Martoma, 894 F.3d 64 (2d Cir. 2018)