Crying BunnyYou know that Jeffrey Abraham convinced the Second Circuit last month to revive an insider trading case against Xcelera big wigs. But did you know the case has Greater Import than Blawgletter told you about?

It does. As Jeff tells us:

The more important parts of the holding, in my opinion, are that in a claim like this, consistent with Affiliated Ute,* the plaintiff does not have to prove reliance and that scienter is adequately alleged based upon possession of insider information and then trading on same.

Jeff has in mind this passage from the Second Circuit's Xcelera opinion:

To establish an insider trading claim, it is not necessary to show that corporate insiders used the nonpublic information; it is sufficient to prove that they traded their corporation’s securities "while knowingly in possession of the material nonpublic information." . . . Additionally, the Supreme Court has "dispensed with a requirement of positive proof of reliance, where a duty to disclose material information had been breached, concluding that the necessary nexus between the plaintiffs’ injury and the defendant’s wrongful conduct had been established."

Xcelera, slip op. at 8 (citations omitted).

Jeff also points to a second case — this one in Delaware – where his client earned a big win in December 2013. In Silverberg v. Gold, No. 7646-VCP (Del. Ch. Dec. 2013), the court upheld a derivative complaint against insiders of Dendreon Corporation for selling big chunks of their Dendreon holdings just before bad news came out about Dendreon's only product, Provenge. The fate of such a case often hinges on whether the complaint alleges facts that allow a court to infer that the insiders sold their shares with an intent to exploit the inside info. The Silverberg pleading cleared the hurdle because: 

Defendants’ large-scale disposal of stock immediately following the FDA’s approval of Provenge is accompanied by alleged facts supporting a reasonable inference that Defendants knew when they sold that, at a minimum, there was a significant risk of the physician community being reluctant to prescribe Provenge because of the cost and reimbursement concerns associated with it, and that Defendants did not disclose that information to the public. For purposes of a motion to dismiss, therefore, Plaintiff’s allegations are sufficient to support a reasonable inference that Defendants, including Bayh and Watson, intentionally exploited their informational advantage.

Silverberg, slip op. at 36.

What does it all mean? Mainly that clearing the reliance and scienter hurdles in insider trading cases looks easier than many insiders may have assumed.

That may help explain the Securities and Exchange Commission's recent string of wins in such cases — including today's verdict against Mathew Martoma, the ex-trader at the SAC hedge fund.

 It also means that Jeff has a thriving docket. Go Jeff.


In Affiliated Ute Citizens v. United States, 406 U.S. 128 , 153-54 (1972), the Court held that a failure to disclose key facts about a stock can allow a court to presume that the buyer of the stock believed the facts didn't exist — the buyer presumptively relied on the failure to disclose.