Did Newman shift the ground for tippee liability?

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ADecember 2014 decision of the US Second Circuit Court of Appeals in US v Newman has reignited the debate as to when to impose liability on a tippee for insider dealing. In this article, we examine Newman and explain why those trading shares in mainland China and Hong Kong should take note of this controversial decision.

Tippee liability

All leading commercial financial centres, including New York, London and Hong Kong, prohibit insider dealing, treating it as a form of market misconduct. Jurisdictions differ slightly, but all essentially define insider dealing as buying or selling shares on the basis of material (i.e. price-sensitive) information which is not available to the general public. Such trading is prohibited because it is considered unfair to other investors who do not have access to the same special knowledge as the insider.

Liability can be imposed on tippees as well as on insiders such as company directors. Tippees are those who receive non-public, price-sensitive information from insiders and decide to trade based on that information.Newman concerns tippee liability.

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Simon Powell is the managing partner of Latham & Watkins’ Hong Kong office and the chair of the firm’s litigation department in Asia

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