On December 27, 2022—nearly 18 months after hearing oral arguments—the Second Circuit issued its new opinion in United States v. Blaszczak,1 an important insider trading case involving the misappropriation of confidential non-public government information.2 The Second Circuit ruled in favor of the defendants, holding that the confidential government information on which defendants allegedly traded was not "property" and therefore could not serve as the basis for a securities fraud prosecution under 18 U.S.C. § 1348, wire fraud under 18 U.S.C. § 1343, or conversion of government property under 18 U.S.C. § 641.3 Critically, the Second Circuit majority opinion did not address whether an insider trading prosecution brought under 18 U.S.C. § 1348 requires proof of a personal benefit, the way charges brought under Securities Exchange Act § 10(b)4 and Rule 10b-55 do.6 Equally important to insider trading jurisprudence, the Court's majority opinion could be interpreted as limiting the type of information capable of supporting a § 1348 securities fraud charge to information that has economic value to a commercial entity—yet another issue left open for future cases.

As we have discussed in prior client alerts, in Blaszczak the government charged several individuals in a "tipping" scheme after David Blaszczak, a political intelligence consultant and former employee of the Center for Medicare and Medicaid Services ("CMS"), received non-public information about prospective changes to Medicare reimbursement rates from a former colleague still working at CMS.7 Blaszczak shared this information with two hedge fund clients, who then traded in securities of companies that would be affected by the rate changes.8 The defendants were charged with securities fraud under § 10(b) of the Securities Exchange Act and Rule 10b-5, wire fraud, securities fraud, and conversion under Title 18 of the criminal code,9 and certain conspiracy offenses.10 At trial, the jury acquitted the defendants of the insider trading charges brought under § 10(b) and Rule 10b-5, but returned a conviction on the various § 1348 securities fraud, wire fraud, conversion of government property, and conspiracy offenses.11

The first time the defendants' appeal was heard by the Second Circuit, the defendants argued that insider trading charges based on § 1348 required proof of a personal benefit to the tipper, like charges under Title 15.12 The Second Circuit rejected this argument and held that there was no such requirement for § 1348 charges.13 The Supreme Court, however, later vacated and remanded14 the case for further consideration on a separate issue: Whether the government information at-issue was a sufficient property interest to support the various Title 18 fraud and conversion charges in light of the Supreme Court's intervening decision in United States v. Kelly.15 On remand, the government conceded that, in light of Kelly, the defendants' convictions for § 1348 securities fraud, wire fraud, conversion of government property, and conspiracy to commit wire fraud and § 1348 securities fraud should be overturned.16

On December 27, 2022, the panel released its new opinion, remanding the case back to the District Court for further proceedings.17 At the outset, the two judges in the majority reviewed prior case law about the role of the judiciary where the government seeks to dismiss charges, and concluded that the government's decision to dismiss most of the charges against the Blaszczak defendants was "appropriate and owed deference."18 Relatedly, the court considered the property interest analysis in light of Kelly and concluded that the information about pending CMS regulations was not a property interest sufficient to support a fraud charge.19 The majority distinguished the governmental confidential information at issue in Blaszczak from the type of commercial information that could constitute "property" to support a securities fraud conviction under § 1348:

While confidential information may constitute property of a commercial entity such as the publisher victim in Carpenter v. United States, 484 U.S. 19 (1987)—for which confidential information was its "stock in trade, to be gathered at the cost of enterprise, organization, skill, labor, and money, and to be distributed and sold to those who [would] pay money for it," id. at 26 . . . the same is not true with respect to a regulatory agency such as CMS. CMS is not a commercial entity; it does not sell, or offer for sale, a service or a product.20

Based on these two conclusions, the majority remanded the charges for § 1348 securities fraud, wire fraud, conversion of government property, and conspiracy to commit wire fraud and § 1348 securities fraud to the district court for dismissal.21 On the remaining conspiracy charges that charged conspiracy to commit both offenses to which the government confessed error and other bases, the panel concluded that further consideration was required by the trial court in light of its holding, and therefore vacated those convictions and remanded for further proceedings.22

Given the disposition on the grounds described above, the Second Circuit did not need to revisit whether § 1348 securities fraud convictions require proof that the tipper received a personal benefit. Despite this, the two judges in the majority issued an (apparently) non-binding "concurrence" to address the personal benefit question.23 The concurrence expressed deep concern with the idea that failing to impose a personal benefit requirement in § 1348 cases would create "a legal scheme that requires fewer elements to convict someone criminally [under § 1348] than to penalize someone civilly for the same conduct [under § 10(b) or Rule 10b-5]."24 Such a difference would, the concurrence worried, create a "risk of overdeterrence" for potentially innocuous conduct or create confusion for securities professionals trying to comply with the law.25 In light of this, the concurrence urged that "Congress and the courts" should consider the "glaring anomaly that the [Blaszczak I] decision creates[.]"26

Judge Sullivan, meanwhile, dissented and would have affirmed the convictions. Judge Sullivan strongly disagreed with the majority's property holding, reasoning that CMS had a property interest in maintaining the confidentiality of unannounced regulatory changes, and in excluding others from using that information before it became public.27 He also noted that the majority's holding "undermined" various misappropriation-based insider trading and fraud cases that treated confidential information as property, hinting at the potential broader implications of the majority's decision.28 Judge Sullivan also took strong issue with the concurrence regarding the personal benefit requirement and § 1348, noting, among other things, that § 1348 and § 10(b) have distinct statutory purposes rooted in the context in which they were enacted, which Judge Sullivan saw as evidence that Congress did not want the statutes to be "carbon cop[ies]" of one another.29

The broader implications of Blaszczak II will have to be determined another day. First, as the concurrence and dissent make clear, the question of whether insider trading charges under § 1348 require proof of a personal benefit lives on. Second, in its most narrow reading, the majority opinion principally held that in the context of insider trading cases brought under § 134830 and involving government information, the information being traded upon cannot only be about the substance and timing of a non-public regulatory proposal.

However, a broader reading of the majority's property interest decision, as Judge Sullivan's dissent warned, could arguably call into question many "garden variety" insider trading cases brought under § 1348. In finding that the CMS information regarding its regulatory decision was not property, the majority contrasted this sort of information with the confidential information of commercial entities which is gathered as part of their "stock in trade" to be distributed and sold.31 Such commoditized confidential information—such as the newspaper content at issue in Carpenter v. United States32—easily fits the majority's definition of property. But an open question is how other non-public information of commercial enterprises—such as earnings, pending transactions, management changes, or projections, which is not information that companies gather to sell to the public—will fit into the majority's property analysis. Whether courts would accept an argument that information does not constitute a specific commercial entity's property because it is not its "stock in trade," or is not otherwise "distributed and sold to those who would pay money for it"—and is thus not a property interest under § 1348—will have to await another day.

Following the Second Circuit's long-awaited decision, the long-running saga of the Blaszczak case will now wind its way back to the District Court for further proceedings.


1 WilmerHale submitted briefs on behalf of amicus curiae in support of defendants-appellants and reversal in the original appeal and following remand. The views expressed in this alert are those of the WilmerHale contributors only and are not those of amicus curiae.

2 See generally United States v. Blaszczak, No. 18-2825 (2d Cir. Dec. 27, 2022) ("Blaszczak II").

3 Id. at 27-32.

4 15 U.S.C. § 78j(b).

5 17 C.F.R. § 240.10b-5.

6 See, e.g., United States v. Martoma, 894 F.3d 64, 73-74 (2d Cir. 2017).

7 Blaszczak II, slip op. at 7.

8 Id.

9 18 U.S.C. § 1343, § 1348, and § 641, respectively.

10 Blaszczak II, slip op. at 7-8.

11 Id. at 8.

12 United States v. Blaszczak, 947 F.3d 19, 35 (2019), vacated and remanded, 141 S. Ct. 1040 (Jan. 11, 2021).

13 Id. at 35-37.

14 141 S. Ct. 1040 (Jan. 11, 2021).

15 140 S. Ct. 1565 (2020). In Kelly, the Supreme Court considered charges against New Jersey officials involved in the "Bridgegate" scandal to create a traffic jam in Fort Lee, New Jersey in order to punish the mayor of that town for not endorsing then-Governor Chris Christie's bid for re-election. Id. at 1568. The Supreme Court reversed the defendants' convictions, finding that wire fraud and federal program fraud charges require a scheme to obtain money or property and that no such money or property interest existed in the Bridgegate scheme. Id. at 1568-69, 1572-74.

16 Blaszczak II, slip op. at 12-13.

17 Id. at 3.

18 Id. at 16-27.

19 Id. at 27-32.

20 Id. at 29-30.

21 Id. at 32.

22 Id. at 32-35.

23 See generally Blaszczak II (Walker, J., concurring).

24 Id. at 7.

25 Id. at 7-8

26 Id. at 9.

27 Blaszczak II, slip op. at 2-20 (Sullivan, J., dissenting).

28 Id. at 16-18.

29 Id. at 28-35.

30 As well as wire fraud charges under 18.U.S.C. § 1343 and conversion charges under 18 U.S.C. § 641.

31 Blaszczak II, slip op. at 29-30.

32 484 U.S. 19, 26 (1987).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.