A federal jury in the District of Massachusetts recently convicted Eric McPhail of securities fraud — one of the first criminal insider trading convictions since the US Court of Appeals for the Second Circuit’s decision in United States v. Newman.

The allegations arose out of information Mr. McPhail received from a close friend— an executive at American Superconductor Corporation (AMSC) — who was a member of the same country club and went on golf and other trips together. This information allegedly included nonpublic information about AMSC’s business activities. According to the government, Mr. McPhail then gave this information to other friends of his, who made trades based on the information and earned more than $500,000. Mr. McPhail is alleged to have tipped those friends in return for golf tournament fees and meals, and to have told one of them after a tip that he “like[s] Pinot Noir and love[s] steak…looking forward to getting paid back.”

Mr. McPhail previously sought to dismiss the indictment, arguing that no benefit was conferred on the AMSC executive as required by Newman, and that the relationship between Mr. McPhail and the executive did not have the sort of expectation of privacy necessary for insider trading under the misappropriation theory. The Second Circuit denied that motion, holding that the indictment sufficiently alleged a relationship of trust and confidentiality between Mr. McPhail and the executive, and that, in contrast to holdings in other recent post-Newman cases, neither Newman nor US Supreme Court precedent required that, in a misappropriation case such as this one, Mr. McPhail or his friends be aware of a benefit received by the executive in exchange for the information. Ultimately, the jury convicted Mr. McPhail, finding that he had a sufficient relationship of trust and confidence with the executive.

U.S. v. McPhail, No. 14-10201 (D. Mass. June 16, 2015)