ProfessorBainbridge.com

Did Bebchuk's Shareholder Rights Project Improperly Practice Law?

Keith Paul Bishop's post raises that rather interesting question.

Chamber's "Ten Most Ridiculous Lawsuits”

Via email:

“This list puts a light-hearted face on a serious problem: As a country, we simply sue too much,” ILR President Lisa A. Rickard said. “In fact, the collective toll that abusive lawsuits take on our society and our economy is no laughing matter. Lawsuits should be a last resort, not a first option.”

The “Top Ten Most Ridiculous Lawsuits of 2014” included the year’s ten most popular stories featured in monthly polls on FacesOfLawsuitAbuse.org. The “Faces of Lawsuit Abuse” campaign is ILR’s public awareness effort, created to highlight absurd and ridiculous lawsuits filed against businesses, families, and communities across the U.S. 

This year’s “Top Ten Most Ridiculous Lawsuits” are:
1. Plaintiff in Pending Disability Lawsuit Topples Huge, Historic Boulder (Utah)
2. Little League Coach Sues Player Over Celebratory Helmet Toss (California)
3. NY Man Sues for More Money Than Exists on Planet Earth (New York)
4. Rescuers Sued By Man They Pulled From Floodwaters (Colorado)
5. CA Town Victimized by Plaintiffs’ Attorney Who Has Filed More Than 3,000 Lawsuits (California)
6. NYC Woman Spooked by “Dexter” Ad Sues MTA, Showtime for Subway Fall (New York)
7. Baseball Fan Caught Sleeping on Camera, Sues ESPN for $10 Million (New York)
8. Minimum Wage for Court-Ordered Community Service? (New York)
9. Jimmy John’s Lawsuit “Sprouts” Hefty Payday for Lawyers – Vouchers for Victims (California) 
10. Woman Sues Disney for $250M, Claims “Frozen” Stolen From Her Life’s Story (New Jersey)

Links to the full stories from which the list was drawn and the complete results of the poll are available here.

Celebrities on the Oxford comma

My friend Bill Klein sent me this fascinating link. What surprises me is that some of these celebrities even know what the Oxford commas is (although perhaps they cheated).

Yours Truly Quoted by James Stewart in the NY Times re Insider Trading

From the NYT:

Added Stephen M. Bainbridge, an insider trading expert at the University of California, Los Angeles School of Law: “It’s always been a problem to gerrymander insider trading into fraud.” ...

The best limiting principle might well be a statute. “I think the law should be clear rather than vague,” Professor Bainbridge said. “The law ought to put you on notice what you can and cannot legally do.” This seems especially true when a person convicted of violating it faces jail time.

Looking for teaching materials on Citizens United and B Corps

I want to include modules on Citizens United (personhood) and B Corps/L3Cs in my corporate social responsibility course new spring. Anybody got some?

Profs Have Stopped Teaching Rape Law Now That Everything 'Triggers' Students

The influence of the "trigger warnings" movement is now so pervasive that many law professors can't even teach a class on a delicate subject without facing an onslaught of requests from students for feelings accommodation.

Harvard Law School Professor Jeannie Suk sheds light on the difficulty of teaching students about rape law when the forecast for campus is always persistent offendedness:

Students seem more anxious about classroom discussion, and about approaching the law of sexual violence in particular, than they have ever been in my eight years as a law professor. Student organizations representing women’s interests now routinely advise students that they should not feel pressured to attend or participate in class sessions that focus on the law of sexual violence, and which might therefore be traumatic. These organizations also ask criminal-law teachers to warn their classes that the rape-law unit might “trigger” traumatic memories. Individual students often ask teachers not to include the law of rape on exams for fear that the material would cause them to perform less well. One teacher I know was recently asked by a student not to use the word “violate” in class—as in “Does this conduct violate the law?”—because the word was triggering. Some students have even suggested that rape law should not be taught because of its potential to cause distress.

Suk—who is one of the signatories on this statement of opposition to Harvard's illiberal sexual assault policy—goes on to note that the very real, terrible consequence of not teaching rape law will be the proliferation of lawyers ill-equipped to deal with such matters. Victims of sexual assault deserve competent legal representation; the legal system needs prosecutors, defense attorneys, and judges who have vigorously studied the nuances of rape adjudication. Social progress on all these fronts will be rolled back if law professors stop educating students about rape. That would be a travesty of justice.

via reason.com

Sigh.

The shareholder empowerment debate reaches Europe

I found this to be a very interesting paper:

This paper supports the objective of the proposed revision of the Shareholder Rights Directive (Directive 2007/36/EC), that is, to contribute to the long-term sustainability of EU companies. However, it expresses concern that the measures being considered will not achieve their intended purpose, and worse, that they may have unintended negative consequences. The fundamental issue is that shareholder empowerment will not, on its own, improve corporate governance or contribute to sustainable growth in the EU. 

Short-termism was one of the root causes of the financial crisis. It has not been adequately addressed to promote sustainable European growth over the long-term. Despite the Commission’s well-intentioned efforts, the proposed revision falls far short of addressing the underlying causes of short-termism so as to prevent future crises. 

The current proposal relies exclusively on shareholders to drive the shift to a longer-term perspective. Especially after the financial crisis, there is no clear reason for this exclusive reliance on shareholders. Although shareholders have and should have specific rights in corporate governance, shareholders do not own companies. Their relationship with the company is a contractual one, just like that of creditors and employees. Moreover, shareholders differ considerably in their time frames and approaches. Some shareholders are committed to holding for the long-term, whilst others only hold for the short-term. It is important that the former group become more engaged; however, there is a danger that the proposed revision will further empower shareholders with a short-term orientation. For this reason, there is a need for further measures to complement the proposed revision and achieve the goal of a longer-term approach to corporate governance. The paper suggests minor changes to the proposal and canvasses some more far-reaching changes.

Johnston, Andrew and Morrow, Paige, Commentary on the Shareholder Rights Directive (December 8, 2014). University of Oslo Faculty of Law Research Paper No. 2014-41. Available at SSRN:http://ssrn.com/abstract=2535274

Was ISS' analysis of the effect of "just say no" correct?

One of the reasons empirical scholarship often bugs me is that the answers you get are so dependent on how you set up the problem and crunch the numbers. One is frequently reminded of Harry S Truman's plea for a one handed economist.

Case in point:

In October 22nd 2014, ISS published a note on the financial consequences for shareholders to vote “NO” to a proposed takeover (available in an article by Steven Davidoff Solomon,“The Consequences of Saying No to a Hostile Takeover Bid”, published on October 28th, 2014, in the New York Times DealBook). ISS claims to have demonstrated that those shareholders who voted “No” to a proposed takeover of their company would have been better off financially, had they agreed to the takeover. 

Unfortunately, the ISS note does not support such a blanket statement. Our take on the ISS paper highlights many debatable aspects of their analysis. We show that the paper produced by ISS to support the position of hostile bidders falls flat. It is marred by dubious analytical choices, questionable metrics and the remarkable absence of a key investment parameter, the risk/return relationship.

Allaire, Yvan and Dauphin, Francois, The Value of 'Just Say No': A Response to ISS (November 6, 2014). Available at SSRN: http://ssrn.com/abstract=2531132.

My normative priors tempt me to embrace this finding, of course.

The UCLA First Amendment Law exam question controversy

My friend and colleague Eugene Volokh has context and analysis. See also Howard Wasserman's analysis. All of which makes me glad I teach business law.

Conference on "The Vocation of a Christian Law Prof"

Rick Garnett blogs:

For everyone planning on attending the AALS Annual Meeting in DC -- and for any law professors or law students who'll be in the area in early January! -- here's information about the upcoming Lumen Christi / Law Professors Christian Fellowship event, featuring our own Rob Vischer and Prof. Barbara Armacost (U. Virginia).  Sign up now!

I won't be there, of course, because I never go anywhere I can't get to in my RV. But people willing to subject themselves to the terrors and trials of modern air travel should probably go. I've been to several of their events over the years and they are always rewarding.

Gibson Dunn's very helpful overview of which transactions get which standard of review

Must reading for deal lawyers.

Did Bebchuk's Shareholder Rights Project violate the antifraud rules?

Jonathan Macey blogs that:

In their recent paper “Did Harvard Violate Federal Securities Law? The Campaign Against Classified Boards of Directors” posted on December 10, 2014, a sitting Commissioner of the Securities and Exchange Commission and a former SEC Commissioner accuse theShareholder Rights Project at Harvard Law School (SRP) of violating the anti-fraud provisions of the securities laws. The alleged fraud occurred when institutional investors represented by the SRP proposed shareholder resolutions encouraging shareholders in U.S. public companies to vote to de-stagger their companies’ boards.

Macey then offers a lengthy analysis of the paper, which concludes that "the SRP proposals were not fraudulent or misleading," which leads Macey to posit that:

Gallagher and Grundfest's real quarrel is not limited to the SRP proposals: it reflects a general indictment of the way that the SEC staff currently handle 14a-8 proposals. Not enough succor is provided by the SEC to companies who wish to exclude shareholders’ proposals according to Gallagher and Grundfest. Accusing an academic institution and a professor of committing fraud appears to me to be a strange way to criticize the SEC staff or to press for a change in enforcement practices, particularly when the accusation is being made by a sitting government official.

Tyler Cowen piles on, calling the Gallagher/Grundfest paper "a dangerous precedent" that represents a threat to "academic freedom," without exactly explaining why that's the case.

Cowen's complaint strikes me as silly. Academic freedom is not a license to commit fraud. Moreover, Gallagher and Grundfest are not complaining about the SRP's academic work but about their work as advocates of a shareholder proposal. So even if the SRP is chilled in making shareholder proposals (something that seems exceedingly unlikely), the SRP remains free to express its views in countless other ways.

My take is that Gallagher and Grundfest went way over the top on this one. And that's too bad because the long run effect is likely to give succor to the SRP and its ilk in their ongoing effort to remake American corporate governance according to their mistaken and misbegotten views.

Recent citations to my work

 

1.		11 Hastings Bus. L.J. 29 Hastings Business Law Journal Winter 2015 GOODWILL AND THE EXCESSES OF CORPORATE POLITICAL SPENDING David Rosenberg ...business purpose of the company as broadly as possible in order to avoid claims that certain activities are ultra vires STEPHEN M. BAINBRIDGE, CORPORATION LAW AND ECONOMICS, 59 60 Found. Press 2002). [FN35] . Faith Stevelman Kahn, Pandora's Box: Managerial Discretion and the Problem ...  ...805, 812 (Del. 1984) [FN40] Shlensky v. Wrigley, 237 N.E.2d 776, 780-81 (Ill. App. Ct. 1968) [FN41] See BAINBRIDGE supra note 34, at 123. [FN42] Wrigley , 237 N.E.2d at 780 [FN43] . Elhauge, supra note 12, at 776. [FN44 ...  ...accept for the corporation the highest risk adjusted returns available that are above the firm's cost of capital” See also BAINBRIDGE supra note 34, at 107. [FN51] . Larry Ribstein, Corporate Political Speech , 49 WASH. & LEE L. REV . 109, 126 (1992) Although...
2.		GATEKEEPER LIABILITY OF LIFE INSURANCE COMPANY INSIDE ATTORNEYS ““APPEARING” BEFORE THE SEC Gary O. Cohen November 12 - 14, 2014 SW003 ALI-CLE 879 Conference on Life Insurance Company Products Featuring Current SEC, FINRA, Insurance, Tax, and ERISA Regulatory and Compliance Issues The American Law Institute Continuing Legal Education ...involving accountants)(emphasis added)[hereinafter Touche Ross]. [FN119] . Villa Article, supra note 32, at 105-106 (emphasis added). [FN120] . Professor Stephen Bainbridge, Stephen Bainbridge's Journal of Law, Politics, and Culture (Oct. 4, 2011) (emphasis added), available at http:// www.professorbainbridge.com/professorbainbridgecom/2011/10/remarks-onin-house-counsel-as-gatekeepers.html(emphasis added)[hereinafter Prof. Bainbridge Remarks]. [FN121] Id. [FN122] . Prezioso Outline, supra note 5, at 6 (emphasis added). [FN123] . Rule 102(f)(2)(emphasis added  ...aff'd Weiss v. SEC, 468 F.3d 849 (D.C. Cir. 2006) available at https://www.sec.gov/info/municipal/dcccweissopinion112806.pdf. [FN137] . Prof. Bainbridge Remarks, supra note 120. [FN138] . SEC Monson Proceeding, supra note 94. [FN139] . SEC Monson Decision, supra note 18, at 5...
3.		GATEKEEPER LIABILITY OF LIFE INSURANCE COMPANY INSIDE ATTORNEYS ““APPEARING” BEFORE THE SEC-SUPPLEMENTAL MATERIAL Stephen L. CohenGary O. Cohen November 12 - 14, 2014 SW003 ALI-CLE 957 Conference on Life Insurance Company Products Featuring Current SEC, FINRA, Insurance, Tax, and ERISA Regulatory and Compliance Issues The American Law Institute Continuing Legal Education  ...involving accountants)(emphasis added)[hereinafter Touche Ross]. [FN119] . Villa Article, supra note 32, at 105-106 (emphasis added). [FN120] . Professor Stephen Bainbridge, Stephen Bainbridge's Journal of Law, Politics, and Culture (Oct. 4, 2011)(emphasis added), available at http:// www.professorbainbridge.com/professorbainbridgecom/2011/10/remarks-on-in-house-counsel-asgatekeepers.html (emphasis added)[hereinafter Prof. Bainbridge Remarks]. [FN121] Id. [FN122] . Prezioso Outline, supra note 5, at 6 (emphasis added). [FN123] . Rule 102(f)(2)(emphasis added  ...aff'd Weiss v. SEC, 468 F.3d 849 (D.C. Cir. 2006) available at https://www.sec.gov/info/municipal/dcccweissopinion112806.pdf. [FN137] . Prof. Bainbridge Remarks, supra note 120. [FN138] . SEC Monson Proceeding, supra note 94. [FN139] . SEC Monson Decision, supra note 18, at 5...
4.		100 Cornell L. Rev. 99 Cornell Law Review November, 2014 FINDING ORDER IN THE MORASS: THE THREE REAL JUSTIFICATIONS FOR PIERCING THE CORPORATE VEIL Jonathan Macey, Joshua Mitts ...we believe that our taxonomy can produce a coherent account of veil-piercing cases, and are thus more optimistic than Stephen Bainbridge, who famously called for the abolishment of the doctrine. [FN51] Unlike Bainbridge, we believe that there are strong public policy rationales for retaining veil piercing in certain situations. We hesitate to conclude ...  ...Shareholder Liability: Vicarious Tort Liability for Corporate Officers, 57 VAND. L. REV. 329, 337 (2004) [FN14] Id. at 340 [FN15] . Stephen M. Bainbridge, Abolishing Veil Piercing, 26 J. CORP. L . 479, 507 (2001) [FN16] . See id. at 506-07 ; see also Frank H ...  ...frequency of and rates for veil piercing in Contract and Tort.” [FN50] . See Matheson, supra note 46, at 4. [FN51] . Bainbridge, supra note 15, at 479. [FN52] STEPHEN B. PRESSER, PIERCING THE CORPORATE VEIL (2013). [FN53] 42 U.S.C. § 9601 (2012...
5.		66 Fla. L. Rev. 2179 Florida Law Review November, 2014 SHAREHOLDER PROPOSALS IN THE MARKET FOR CORPORATE INFLUENCE Paul Rose  ...proponents of shareholder primacy. Director primacy is not wholly compatible with agency models of the shareholder-director relationship. As Professor Stephen Bainbridge puts it, directorial power is “sui generis”; directors may be elected by shareholders, but they are not mere agents of ...  ...2013) [FN14] . Paul Rose, Common Agency and the Public Corporation, 63 Vand. L. Rev. 1355, 1359 (2010) [FN15] . See, e.g., Stephen M. Bainbridge, Director Primacy: The Means and Ends of Corporate Governance, 97 Nw. U. L. Rev. 547, 550 (2003) [FN16] . See id ...  ...will not question the rational business judgments made by directors, corporate boards should nonetheless “ultimately promote stockholder value”). [FN21] . See Bainbridge, supra note 15, at 560. [FN22] Id. at 563-65 [FN23] . See id. at 567 [FN24] Id. at 563-65 [FN25] . Rose, supra note 14, at 1364-65. [FN26] . See Stephen M. Bainbridge, The Creeping Federalization of Corporate Law, Reg., Spring 2003, at 26, 26. [FN27] . See infra Part IV. [FN28] . Elizabeth Garrett...
6.		99 Minn. L. Rev. 27 Minnesota Law Review November, 2014 A CORPORATE RIGHT TO PRIVACY Elizabeth Pollman  ...a discussion of the roles of directors and officers, see KLEIN ET AL., supra note 163, at 116, 135-37; Stephen M. Bainbridge, Why a Board? Group Decisionmaking in Corporate Governance , 55 VAND. L. REV. 1, 5 (2002) ; Donald C. Langevoort, The Human...
7.		48 U.C. Davis L. Rev. 271 U.C. Davis Law Review November, 2014 THE (UN)ENFORCEMENT OF CORPORATE OFFICERS' DUTIES Megan W. Shaner  ...228 229 240 249 274 available at http://www.gpo.gov/fdsys/pkg/FR-2003-04-16/pdf/03-9157.pdf; see also Stephen M. Bainbridge, Director Primacy: The Means and Ends of Corporate Governance , 97 NW. U. L. REV. 547, 559-60, 605-06 (2003) [hereinafter The Means and Ends ]; Stephen M. Bainbridge, Director Primacy and Shareholder Disempowerment , 119 HARV. L. REV . 1735, 1735-36 (2006) [hereinafter Shareholder Disempowerment [FN3] See DEL . C ODE ... ...78o and 18 U.S.C. § 1350 ) (addressing auditors, audit committees, officer certification, prohibition on loans to officers and financial reports); STEPHEN M. BAINBRIDGE, CORPORATE GOVERNANCE AFTER THE FINANCIAL CRISIS (2012) (discussing corporate governance following the financial crisis); ABA Report supra , at 107 (noting ... ...a result of federal preemption. See Mark J. Roe, Delaware's Competition , 117 HARV. L. REV. 588, 600 (2003) see also Stephen M. Bainbridge, The Creeping Federalization of Corporate Law REG ., Spring 2003, at 26, 31 (asserting that the “substance of corporate governance standards...
8.		48 U.C. Davis L. Rev. 337 U.C. Davis Law Review November, 2014 AGAINST CONFIDENTIALITY Dru Stevenson  ...that mandatory disclosure “equalizes information asymmetries, thereby enhancing settlement prospects and also reducing surprises and gamesmanship at trial.” [FN6] See Stephen M. Bainbridge, Community and Statism: A Conservative Contractarian Critique of Progressive Corporate Law Scholarship 82 CORNELL L. REV . 856, 869 n.53..

The personal benefit element of insider trading tipping liability post-Newman

Michael Perino has a Dealbook post about the state of insider trading law after US v. Newman. It's an lengthy and thoughtful argument, but here's the gist:

In order to show a violation, prosecutors must now prove “a meaningfully close personal relationship that generates an exchange that is objective, consequential, and represents at least a potential gain of a pecuniary or valuable nature.” The government cannot prove the existence of this kind of benefit from “the mere fact of a friendship, particularly of a casual or social nature.” A tip to a golfing buddy, a college roommate, or a neighbor, without more, is apparently no longer improper.

I disagree with Perino's claim that this represents "a much narrower view than previous courts." To be sure, the US Supreme Court's decision in Dirks v. SEC held that:

The elements of fiduciary duty and exploitation of nonpublic information also exist when an insider makes a gift of confidential information to a trading relative or friend. The tip and trade resemble trading by the insider himself followed by a gift of the profits to the recipient.

But does this mean that all gifts give rise to liability under Dirks? I don't think so. As I wrote in my book Insider Trading Law and Policy:

The question of what constitutes the requisite personal benefit was posed by well-known economics blogger Megan McArdle in connection with the insider trading case against prominent Wall Street executive Rajat Gupta:

Rajat Gupta, formerly a director at Proctor and Gamble and Goldman Sachs, has been indicted on multiple counts of passing insider information about the companies he was supposed to be helping to oversee. He is alleged to have delivered this information to Raj Rajaratnam, the hedge-fund manager who just got 11 years for insider trading.

… This is a very interesting case, because Gupta is not accused of having directly profited from the tips. He’s accused merely of having used them to build his relationship with Rajaratnam.

… [I]nsider trading cases usually require proving that the insider who delivered the information did so for some gain. That gain doesn’t have to be immediate, or in cash, but it does have to be something that you can point to and say “That’s what he got out of it”.

“Rajaratnam’s goodwill” is slightly more nebulous than I believe usually goes to trial. And that’s not just because you have to spend hours in court arguing about whether this is actually valuable. It’s also because without a gain, there’s less in the way of a paper trail. ...[1]

McArdle was not the only commentator who raised this issue in connection with the Gupta case. University of Chicago law professor Randal Picker opined that:

According to Wayne State University Law School professor Peter J. Henning in a recent New York Times article, there are complications to each aspect of this case. ...

Proving Gupta received a personal benefit from his alleged tips to Rajaratnam is likely the hardest aspect of the case for the Department of Justice. In Dirks vs. SEC, the Supreme Court said that to prove insider trading by a tipper, “the test is whether the insider personally will benefit, directly or indirectly, from his disclosure. Absent some personal gain, there has been no breach of duty to stockholders.” The indictment itself is surprisingly muted on this aspect, merely stating that Gupta “provided the inside information to Rajaratnam because of Gupta’s friendship and business relationships with Rajaratnam. Gupta benefitted and hoped to benefit from his friendship and business relationships with Rajaratnam in various ways, some of which were financial”. Gupta’s lawyer, in contrast, stated that during the time in question his client lost his entire investment in the Galleon Fund. It will be interesting to see what evidence prosecutors have to demonstrate how exactly Gupta benefitted (especially since the financial relationships between Gupta and Rajaratnam cited in the indictment occurred mostly from 2003 through 2006, well before 2008).[2]

Any analysis of this issue must start by recognizing that Gupta was not charged with insider trading as such. Instead, he was charged with the related offense of tipping information to an outsider who then used it to trade. As a tipper, Gupta could be held liable if the government showed—as it succeeded in doing—that he (a) disclosed material nonpublic information to Rajaratnam (b) in return for a personal benefit (c) expecting Rajaratnam to trade. The question raised by McArdle goes to the second prong; namely, whether Gupta making tips “to build his relationship with Rajaratnam” rises to the requisite personal benefit. In short, it does.

Dirks itself held that the tipper can be held liable when he ““receive[s] a direct or indirect personal benefit from the disclosure, such as a pecuniary gain or a reputational benefit that will translate into future earnings.”[3] The court further explained that “The elements of fiduciary duty and exploitation of nonpublic information also exist when an insider makes a gift of confidential information to a trading relative or friend. The tip and trade resemble trading by the insider himself followed by a gift of the profits to the recipient.”[4] As the Second Circuit later explained, by this formulation “the Supreme Court has made plain that to prove a § 10(b) violation, the SEC need not show that the tipper expected or received a specific or tangible benefit in exchange for the tip.”[5] In that case, the court held that “The close friendship between [tipper] Downe and [tippee] Warde suggests that Downe’s tip was ‘inten[ded] to benefit’ Warde, and therefore allows a jury finding that Downe’s tip breached a duty under § 10(b).”[6] If a “close friendship” is not too nebulous, getting on the good side of a major player in the hedge fund industry is a very easy case. The Gupta case thus can be instructively contrasted with SEC v. Maxwell,[7] which rejected tipper liability on grounds that the alleged tipper was unlikely to receive any future pecuniary or reputational benefit from giving tips to his barber. As a major hedge fund manager, Rajaratnam was no mere barber.

As Thomson Reuters’ Accelus blog explained:

In S.E.C. v. Sekhri, the court both distinguished and refined the concept of personal benefit as an element of insider trading:

The first part of Sehgal’s argument fails because it is based on an overly narrow interpretation of the rule stated in Dirks. While Sehgal is correct in arguing that the evidence must show that Sekhri sought some personal benefit from disclosing the nonpublic information to Sehgal in order to have breached his fiduciary duty, he ignores the remainder of the Court’s statement.... While noting that the insider must seek to benefit from disclosing inside information, the Supreme Court noted that “[t]here are objective facts and circumstances that often justify [the] inference” that the insider benefitted from the disclosure.... For example, “[t]he elements of fiduciary duty and exploitation of nonpublic information also exist when an insider makes a gift of confidential information to a trading relative or friend.” .... (emphasis added (by Court)). Thus, when Sekhri disclosed insider information to his father-in-law, Sehgal, it may be inferred that Sekhri received some personal benefit from the gift of information. Likewise, the burden of proof shifts from the SEC to Sehgal, and Sehgal must prove that his son-in-law derived no benefit from the disclosure in order to negate the inference that Sekhri benefitted from the transaction.

In the case of Gupta and Rajaratnam, the two men, in addition to years-long friendship, had a number of investments together.[8]

Not surprisingly, the jury apparently had no difficulty finding the requisite personal benefit, as it convicted Gupta of multiple counts of illegal tipping.

Nothing in Newman overturns any of these precedents. To the contrary, Newman is entirely consistent with SEC v. Maxwell. Being friends is not a personal benefit. Being friends with benefits, however, is the requisite personal benefit. Put another way, to rephrase Perino, a tip to a golfing buddy, a college roommate, or a neighbor, remains improper if the tipper may receive any future pecuniary or reputational benefit from the tippee. At most Newman clarified the law in this regard. But Newman did not make new law.

Active fund management doesn't work

More evidence for indexing.