United States vs. Blaszczak: The Case that Keeps on Giving

United States vs. Blaszczak, an insider trading case first brought by the Manhattan US Attorney’s Office in 2017, continues to have an impact on insider trading law, according to attorneys at Schulte Roth & Zabel LLP, writing in the Harvard Law School Forum on Corporate Governance.

In December 2022, the U.S. Court of Appeals for the Second Circuit issued another decision favoring the accused defendants, based on non-public pre-decisional government information.

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“Blaszczak is a prime example of how the law of insider trading is judge-made,” attorneys Charles J. Clark, Gary Stein and Craig S. Warkol, write. Without a federal statute targeting it, prosecutors have adapted other more general statutes, including the anti-fraud prohibitions in Section 10(b) of the Securities Exchange Act and other disparate federal statutes. The amalgam “illustrates the overlapping, conflicting and uncertain scope of these different laws,” the lawyers wrote.

The case will affect how future cases are prosecuted, but they don’t conclude what the impact may be.

The underlying prosecution was brought based on allegations that David Blaszczak shared non-public information given to him by an employee of the Centers of Medicare and Medicaid Services. Blaszczak allegedly shared the information with hedge fund analysts so they could make investments relating to public companies knowing that the news would impact those companies’ stock prices.

Now the defendants will return to the district court, potentially for a new trial on conspiracy charges.” The effects will be most strongly felt in situations dealing with nonpublic information from the government and governmental agencies. To the extent prosecutors want to bring cases involving government sources of nonpublic information, they will be hard-pressed to bring claims requiring such information to be “property” or a “thing of value.”