Yelena Kotlarsky, Andrew Michaelson, and Joe Zales are Partners at King & Spalding LLP. This post is based on their King & Spalding memorandum.
Introduction
Insider trading cases may have become harder to prosecute. On July 31, 2025, the Second Circuit released its opinion in United States v. Chastain, an insider trading case in which the defendant had been convicted by a jury for misappropriating confidential information belonging to his employer and using that information to trade for personal gain. That sounds like garden variety insider trading, except here, there was a twist. Whereas most criminal insider trading cases are charged as securities fraud, here the defendant was tried and convicted under the wire fraud statute. The Second Circuit reversed the conviction, and in so doing substantially narrowed the extent to which the wire fraud statute protects against an employee’s misuse of a company’s confidential information. Specifically, the Second Circuit found that the wire fraud statute’s prohibition against misappropriating an employer’s “property” extends only to information that has commercial value to the employer. Information that is of value to an employee for trading purposes—but that lacks commercial value to the employer—is fair game.
While the criminal wire fraud and securities fraud statutes are distinct, they share a common nucleus in their definition of ‘property’. The Second Circuit’s decision could thus have wide-ranging impact upon prosecutions concerning securities fraud, too. The impact could grow further when considering the possible impacts upon civil actions under Rule 10b-5. This client alert discusses the Chastain decision and its potential impact on defending insider trading in securities and commodities cases.
