Jed Rakoff and the Second Circuit Court of Appeals have a bit of a rocky history. Mostly, that’s due to the latter’s telling the former that he couldn’t reject a bullshit settlement just because he didn’t like it. But that’s not the only place where the outspoken jurist finds himself at odds with his nominal superiors: For instance, Jed has made prettyclear he’s on Preet Bharara’s side re: the Second’s gutting of insider-trading laws.
Now, as a mere U.S. District Court judge, Jed can’t do very much about that except nibble at the edges and hope that the folks up Pearl Street don’t slap him down again. But thanks to an unusual confluence of events, a few days ago, Jed got to tell the Second Circuit where to stick it. You see, because Congress doesn’t want to pay as many judges as the federal courts need, every now and again the appeals courts get to call up a kid from the minors to help out. Fortuitously for Jed, the appeals court that needs the most help is the Ninth Circuit, which basically covers anything west of the Rockies. Fortuitous for two reasons: (a) All-expenses paid vacation to San Francisco, and (b) that court just happened to be considering a case not terribly dissimilar from a certain case whose outcome Jed doesn’t think too much of.
Suffice it to say, Jed Rakoff did not disappoint.
In the Salman opinion, Judge Rakoff pointed out that the Second Circuit’s decision is not binding on the Ninth Circuit, but noted that “we would not lightly ignore the most recent ruling of our sister circuit in an area of law that it has frequently encountered.” He wrote that if the Newman case meant that every benefit provided to a tipper had to be tangible, then “we decline to follow it” because it would “depart from the clear holding of Dirks” that recognized gifts as an acceptable benefit.
Without saying he disagreed with the Newman approach, he pointed out that it could go too far in protecting tipping in certain situations. “A corporate insider or other person in possession of confidential and proprietary information would be free to disclose that information to her relatives, and they would be free to trade on it, provided only that she asked for no tangible compensation in return,” he wrote.
Judge Rakoff Ruling on Tips May Help Prosecution on Insider Trading Cases [DealBook]
U.S. v. Bassam Yacoub Salman [Ninth Circuit]