On December 27, 2022, in United States v. Blaszczak ("Blaszczak II"), the U.S. Court of Appeals for the Second Circuit called into question what constitutes "property" in cases of securities fraud, wire fraud and theft of government property. Specifically, the court vacated the convictions of defendants who were found guilty of violating those statutes under prosecutors' theory that they traded on material nonpublic information ("MNPI") obtained from a government agency, holding that a government agency's non-public pre-decisional regulatory information does not constitute "property" or a "thing of value" within the meaning of those offenses.

In a concurring opinion, Judge John M. Walker, Jr., joined by Judge Amalya L. Kearse, also noted the "asymmetry" in the requirements for insider trading under Title 18 securities fraud as compared to the Securities Exchange Act of 1934 (the "Exchange Act"), expressing concern about the government's use of Title 18 securities fraud statutes to prosecute insider trading offenses without proof of a "personal benefit" to the person supplying the insider information (the "tipper").


  • The court's reasoning narrows the scope of federal insider trading cases that can be brought if the alleged confidential information was obtained from government agencies and the government is alleged to be a victim of a deprivation or conversion of its confidential information.
  • The court's definition of property may narrow the scope of criminal cases that do not involve insider trading but allege theft of, or fraud involving, government property, including wire fraud, mail fraud, or health care fraud cases.
  • Further, Judge Walker's and Judge Kearse's concurring view that the government is required to prove a personal benefit to sustain a federal insider trading conviction has potentially significant implications. Although not binding precedent, it cautions against and could dissuade the government from continuing to use the Title 18 securities fraud statute to prosecute insider trading without proof of a personal benefit to a tipper.
  • The court's holding, which distinguishes between confidential information of government agencies and that of commercial entities, does not affect insider trading cases involving MNPI of public companies and other non-government sources.


The Indictment and Trial

In the underlying district court case, the government alleged that four defendants participated in schemes in which employees from federal Centers for Medicare and Medicaid Services ("CMS") obtained MNPI maintained by CMS relating to reimbursement rates for medical treatments and disclosed that information through a consultant to hedge fund traders, who thereafter traded on that information.

The indictment charged the defendants with insider trading under both (1) the Exchange Act and Rule 10b-5 and (2) the Title 18 securities fraud statute (18 U.S.C. § 1348). It also charged the defendants with conspiracy, wire fraud (18 U.S.C. § 1343), and conversion of government property (18 U.S.C. § 641).

The district court's jury instructions for the Exchange Act offenses required the government to prove, among other things, that the alleged tipper - an employee of CMS - breached his duty of trust and confidence to CMS and received a personal benefit for disclosing MNPI, and that the alleged tippees - the consultant and hedge fund traders - received and/or traded on that information and knew of the alleged tipper's breach and personal benefit. The court's jury instructions for the Title 18 securities fraud offenses, however, did not require the government to prove the alleged tipper's breach of a duty of trust and confidence, nor did they require proof of receipt of a personal benefit.

At trial, the jury acquitted the defendants of the Exchange Act offenses. But the jury found the defendants guilty of conspiracy to commit securities fraud, convert government property and defraud the United States, and various substantive counts of Title 18 securities fraud, wire fraud, and conversion of government property.

Prior Appeal and Decision (Blaszczak I)

The defendants appealed. The Second Circuit, in a 2-1 opinion, affirmed the defendants' convictions. United States v. Blaszczak, 947 F.3d 19 (2d Cir. 2019) ("Blaszczak I"). Writing for the majority, Judge Richard J. Sullivan held that, unlike the Exchange Act, the Title 18 securities fraud statute did not require proof of a personal benefit to the tipper for disclosing MNPI. Judge Kearse dissented on the ground that the alleged inside information - CMS's pre-decisional regulatory information - did not constitute "property" or a "thing of value" for purposes of the Title 18 securities fraud, wire fraud, and conversion of government property offenses.

The defendants thereafter petitioned the Supreme Court for certiorari.

Kelly v. United States

While the petition was pending, the Supreme Court issued its decision in Kelly v. United States.1 Kelly arose from the "Bridgegate" scandal, in which New Jersey officials allegedly altered the flow of traffic onto the George Washington Bridge to punish the mayor of Fort Lee for not endorsing Governor Chris Christie's reelection campaign. The Kelly defendants were convicted at trial of wire fraud, federal program fraud, and conspiracy. The Supreme Court, however, reversed the convictions, holding that the government failed to prove that the object of the scheme was to obtain money or property. The Court reasoned that the scheme involved the abuse of the government's regulatory power to control traffic, but that the abuse of regulatory authority did not constitute property within the meaning of the federal fraud statutes.

Blaszczak II

The Supreme Court thereafter vacated Blaszczak I and remanded the case to the Second Circuit for reconsideration in light of Kelly (Blaszczak II).

In briefing on remand, the government, at the direction of the Solicitor General, agreed with the defendants that the substantive convictions for Title 18 securities fraud, wire fraud, and conversion of government property must be vacated because the inside information at issue did not constitute "property or a thing of value" under the relevant statutes. The government nevertheless argued that the defendants' convictions for conspiracy to commit securities fraud and conspiracy to convert government property and defraud the United States should be affirmed.

The Majority Opinion

In a 2-1 decision in Blaszczak II, Judge Kearse, joined by Judge Walker,2 held that Kelly and the "the prosecutorial discretion to which the Executive Branch is entitled"3 required remanding the Title 18 securities fraud, wire fraud, and conversion of government property convictions to the district court for dismissal. The court concluded, in light of Kelly, that the Title 18 offenses "do not apply to the conduct that was at issue here."4 The court highlighted that the federal fraud statutes "are limited in scope to the protection of property rights" and prohibit "only deceptive schemes to deprive [the victim] of money or property."5

The court reasoned that CMS's nonpublic, pre-decisional regulatory information was not CMS's "property" because "CMS is not a commercial entity; it does not sell, or offer for sale, a service or a product."6 The alleged disclosure of CMS's confidential information, the court further reasoned, had "no direct impact on the government's fisc."7 The court thus concluded: "The information reflecting such a [regulatory] decision and the timing of that disclosure are regulatory in character and do not constitute money or property of the victim; and they are not a 'thing of value' to CMS that is susceptible to be converted."8

Because the government could not prove that "any lack of clarity as to the basis of the jury verdicts on [the conspiracy] counts was harmless,"9 the court vacated the conspiracy convictions and remanded them to the district court for further proceedings, including potentially a new trial.

Judge Walker's Concurrence

In a concurring opinion, Judge Walker, joined by Judge Kearse, wrote separately to "highlight a glaring anomaly." Namely, their anomaly was Blaszczak I's holding that a Title 18 insider trading conviction does not require proof that the tipper received a personal benefit and that means the Securities and Exchange Commission, which can bring civil enforcement actions under the Exchange Act, faces a higher burden than the Department of Justice in its prosecutions for insider trading under Title 18.10 In view of this "asymmetry," Judge Walker cautioned that "traditional notions of fair play are offended" by an "incongruence in this circuit between civil and criminal deterrence. It should not require fewer elements to prove a criminal conviction than to impose civil penalties for the same conduct."11

Judge Walker reasoned that the personal benefit test is a safeguard against criminalizing honest disclosure and collection of corporate information. For this reason, the use of the Title 18 securities fraud statute to prosecute insider trading without proof of a personal benefit would have a chilling effect on legitimate market activity.

Judge Sullivan's Dissent

Judge Sullivan, who wrote the majority opinion in Blaszczak I, dissented, and stated that "nothing" in Kelly "alters the conclusion that CMS information constituted property in the hands of the government for purposes of"12 the Title 18 securities fraud and wire fraud statutes. He further reasoned that neither Title 18 securities fraud nor wire fraud "distinguishes between tangible and intangible property, or in any way suggests that information in the possession of a government agency as opposed to a private entity is beyond the scope of the statute."13 Judge Sullivan also disagreed with the concurrence that Title 18 securities fraud should require proof of a personal benefit. Based upon the legislative history and purpose of the Title 18 securities fraud statute, which was added to the criminal code by the Sarbanes-Oxley Act of 2002, Judge Sullivan concluded that Congress did not intend Title 18 securities fraud "to be a mere carbon copy of the Title 15 securities-fraud statute."14


Time will tell how far reaching the Second Circuit's opinion in Blaszczak II will be. The decision limits the scope of insider trading and other criminal cases alleging theft of government information. And Judge Walker's and Judge Kearse's concurrence, which identifies an "asymmetry" in the requirements of the Exchange Act and the Title 18 securities fraud statute, calls for additional clarity for the application of the personal benefit test in insider trading law.


1. 140 S. Ct. 1565 (2020).

2. In Blaszczak I, Judge Christopher F. Droney joined Judge Sullivan's majority opinion. Following Judge Droney's retirement, Judge Walker replaced Judge Droney on the panel for Blaszczak II.

3. United States v. Blaszczak, No. 19-2811, at *2 (2d Cir. 2022).

4. Id. at *27.

5. Id.

6. Blaszczak, No. 19-2811, at *30 (emphasis added).

7. Id.

8. Id.

9. Id. at *15.

10. Blaszczak, No. 19-2811, concurrence at *1.

11. Id. at *2.

12. Blaszczak, No. 19-2811, dissent at *1.

13. Id. at *3.

14. Id. at *33.

Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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