By Alex Twinem
The Supreme Court made headlines last week in a case it never even decided. The Court declined to hear arguments in United States v. Newman, a heavily publicized insider trading case from New York. Until late 2014, federal prosecutors in New York had been on the warpath against Wall Street misconduct, racking up 85 insider-trading convictions that represented “a nearly undefeated record at trial.” Then, the Second Circuit Court of Appeals — the federal court of appeals that hears cases from Connecticut, New York and Vermont — slammed on the brakes in Newman, overturning the convictions of two hedge fund managers, Todd Newman and Anthony Chiasson.
At trial, Newman and Chiasson had argued that they didn’t realize the information they used to make trades was legally off-limits. Though the jury wasn’t convinced initially, on appeal, the Second Circuit ruled in the defendants’ favor for two reasons. First, the government failed to prove that the insider who gave the defendants information received something like a monetary benefit in exchange for providing the tip. Second, the government failed to prove that the defendants knew about any personal benefit to the insider.
After its landmark defeat in the Second Circuit, the prosecution appealed the case to the Supreme Court, asking the Court to resolve the first issue: What kind of benefit does the government need to prove to make out a case for insider trading?
As a general matter, it’s not a simple thing to get the Supreme Court to hear a case. We don’t often know how the Court makes those decisions, but it’s safe to say that your odds of getting the Supreme Court to hear your case are about one in 100. That said, the Court is much more likely to hear a case if, as was the case here, the U.S. Government is the one asking, and the Court often does step in on highly publicized cases (see, for instance, the recent marriage equality and Affordable Care Act decisions).
But this time, the Court said no, and in the process left in place the decision of the Second Circuit. That decision, in turn, has serious consequences for how insider trading cases can be prosecuted in the Second Circuit (whose geographic territory includes New York City, the heart of the financial world). So why would the Court decline to hear a case that so many people considered a big deal?
One possibility is that the Court just thought the Second Circuit decision came out the right way. If the Court declines to hear a case, that means the decision in the court below stands. And as a general matter, it’s true that the Court tends to reverse the decisions it takes up more often than it affirms. In this case, it might well be that most Justices agreed with the Second Circuit that Newman and Chiasson did not belong in jail. (It may come as some surprise, but this Court actually is not especially hostile to criminal defendants.)
But looking at the briefing the parties sent to the Court, the safer bet is that the Court declined to hear this case for the same reason the Court normally declines to hear cases: This wasn’t what the Supreme Court Rules calls “an important question of law that is ready for resolution.”
So what’s an important question of law that’s ready for resolution?
Well, “question of law” means the Court wants to hear cases that present real questions that the Court hasn’t already answered, as well as questions of law — that is, how the law should be applied in every case, not just whether the decision came out correctly based on the facts in one particular case. And “ready for resolution” means there wouldn’t be any benefit to the Court waiting. For instance, if Congress were about to pass a law clarifying what knowledge was required to prove insider trading, the Court would wisely hold off on addressing that question until Congress weighed in.
But those probably weren’t the reasons the Court held back in Newman. The real problem was that even if this case was a big deal, it was not “important” in the way the Court defines the term. Even if a question of law is interesting to the public, the Court only wants to answer legal questions that will change the outcome of a case. And that is the major problem with the Newman case: It didn’t present what Supreme Court insiders call an “outcome-determinative” issue.
The defendants’ briefs argued persuasively that even if the Supreme Court decided that the Second Circuit was wrong about what kind of benefit the government must prove, Newman and Chiasson still would have been acquitted simply because the government didn’t prove that the defendants actually knew about that benefit. In the defendants’ view, the government was asking the Supreme Court to render a decision that would have no impact on the parties, and the Court generally has little interest in refereeing disputes between parties with nothing to gain.
To make matters worse, this case wasn’t “important” in one more essential sense: There was no real conflict in the lower courts about what to do in these circumstances. The Court thinks that one of its most important jobs is to make sure that the lower courts are roughly in line on major issues of federal law. This ensures that whether you’re a criminal defendant in California or Maine, your judge will play by the same set of rules. For that reason, the Court is much more likely to hear a case when lower courts are “split” on a question, giving the Court an opportunity to ensure consistency in the application of the law. But here, the government only offered two cases they thought conflicted with the Second Circuit’s decision, and at least one of those cases may not have disagreed with Newman at all.
So in the end, Newman wasn’t the right case for the Court to clear up our insider trading laws. (In fact, that’s probably something Congress should take care of.) But even if the books are closed on Newman, the case is a helpful reminder that some of the most important decisions in American law are made without so much as a whisper from the Supreme Court.
Brittany Jones is the president of the Stanford Law Review. Alex Twinem is one of the Stanford Law Review’s managing editors. Michael Qian is one of the Stanford Law Review’s executive editors. Danny Kane is one of the Stanford Law Review’s senior editors.