SCOTUS suggests expansive reach of "Bridgegate" ruling in directing Second Circuit to reconsider insider trading convictions

Supreme Court

White Collar Alert


On January 11, 2021, the Supreme Court vacated a Second Circuit ruling affirming the insider trading convictions of four defendants in United States v. Blaszczak, 947 F.3d 19 (2d Cir. 2019), directing the Circuit to reconsider its finding that confidential government information is a cognizable property interest under the federal fraud statutes in light of the Supreme Court’s May 7, 2020, decision in Kelly v. United States, 590 U.S. ___ (2020) (“Bridgegate”).  See Olan, Robert, et al. v. United States, 20-306, --- S.Ct. ----, 2021 WL 78042 (Mem) (Jan. 11, 2021) and Blaszczak, David v. United States, 20-5649, --- S.Ct. ----, 2021 WL 78043 (Jan. 11, 2021).

As previously discussed here, prosecutors have historically used Title 15 in prosecuting insider trading, but the case law under Title 15 is famously muddled.  Blaszczak was notable because the government charged insider trading both under Title 15 and under a classic Title 18 property fraud theory, such that prosecutors necessarily alleged that confidential information constitutes “property.” Although the jury acquitted the defendants under the Title 15 theories, it convicted under the Title 18 theory and the Second Circuit affirmed the conviction.  The Supreme Court, however, has now ordered the Second Circuit to reconsider its ruling in light of its Bridgegate decision.

United States v. Blaszczak

In Blaszczak, the Second Circuit considered challenges to the convictions of four individual defendants – David Blaszczak, Christopher Worrall, Robert Olan, and Theodore Huber – who were charged with Title 18 criminal offenses including wire fraud, securities fraud and conspiracy, and conversion of US property (18 U.S.C. §§ 1343, 1348, and 641) and with Title 15 securities fraud offenses under Section 10(b) of the Securities Exchange Act of 1934 (15 U.S.C. § 78j).  All charges stemmed from the government’s theory that the defendants misappropriated confidential nonpublic information from the Centers for Medicare & Medicaid Services (CMS) and used that information to engage in an insider trading scheme.  947 F.3d 19, 26 (2d Cir. 2019).  The indictment alleged that a CMS employee (Worrall) had disclosed the agency’s confidential information to a political intelligence consultant for hedge funds (Blaszczak), who in turn passed on the information to two hedge fund employees (Olan and Huber), who then traded on the information. Id.

The jury acquitted all defendants on the Title 15 securities fraud charge under Section 10(b) but convicted them of the Title 18 wire fraud and conversion of government property charges.  Id. at 29-30.  All of the defendants except Worrall, the CMS employee, were also found guilty of the Title 18 securities fraud and conspiracy charges.  Id. 

On appeal, the defendants, among other things, asserted that the alleged theft of information about a proposed government regulation did not suffice to constitute a theft of “property” for the purposes of the federal fraud statutes at issue.  Id. Specifically, “the gravamen of [defendants’] argument [wa]s that a government agency’s confidential information is not ‘property’ in the hands of the agency under the Supreme Court’s decision in Cleveland v. United States . . . because the agency has a ‘purely regulatory’ interest in such information. . . .”  Id. at 30-31 (quoting Cleveland v. United States, 531 U.S. 12, 22 (2002)).

The Second Circuit disagreed.  Affirming the convictions, the court (in a 2-1 decision) adopted an expansive definition of “property” for the purposes of the federal fraud statutes, holding that confidential government information relating to planned medical treatment reimbursement rate changes constituted government “property” sufficient to bring insider trading cases under an embezzlement or misappropriation theory.  In particular, the Second Circuit noted that “the government’s theory of property rights over a regulatory agency’s confidential predecisional information does not ‘stray from traditional concepts of property,’ Cleveland, 531 U.S. at 24, 121 S.Ct. 365, but rather is entirely consistent with them.”  Id. at 34.  The majority reasoned:  

“Here, we find it most significant that CMS possesses a ‘right to exclude’ that is comparable to the proprietary right recognized in Carpenter. Like the private news company in Carpenter, CMS has a ‘property right in keeping confidential and making exclusive use’ of its nonpublic predecisional information. Carpenter, 484 U.S. at 26, 108 S.Ct. 316. In stark contrast to a state's right to issue or deny a poker license – a ‘paradigmatic exercise[ ] of the [state's] traditional police powers’ – CMS's right to exclude the public from accessing its confidential predecisional information squarely implicates the government's role as property holder, not as sovereign. Cleveland, 531 U.S. at 23, 121 S.Ct. 365. . . . Furthermore, although we do not read Cleveland as strictly requiring the government's property interest to be ‘economic’ in nature, the government presented evidence that CMS does have an economic interest in its confidential predecisional information. For example, the evidence at trial established that CMS invests time and resources into generating and maintaining the confidentiality of its nonpublic predecisional information – resources that are devalued when the information is leaked to members of the public. . . . Relatedly, the selective leaking of confidential CMS information risks hampering the agency's decision-making process. Although this risk obviously implicates CMS's regulatory interests, it also implicates CMS's economic interest in making efficient use of its limited time and resources.” 

Id. at 31-34.  The majority rejected the defendants’ argument that the confidential CMS information was not property because there was no evidence at trial to establish that CMS suffered an actual monetary loss, emphasizing that “while monetary loss may generally be a useful tool for distinguishing the government's property interests from its ‘purely regulatory’ interests, Cleveland did not . . . establish any ‘rigid criteria for defining property.’”  Id. (quoting Fountain v. United States, 357 F.3d 250, 256 (2d Cir. 2004)). 

The Second Circuit declined to “impose a rigid ‘monetary loss’ criterion” because it viewed such a requirement to be “at odds with Carpenter, which squarely rejected the argument ‘that a scheme to defraud requires a monetary loss,’ and instead found it ‘sufficient that the Journal ha[d] been deprived of its right to exclusive use of the information’ because ‘exclusivity is an important aspect of confidential business information and most private property for that matter.’”   Id. (quoting Carpenter, 484 U.S. at 26–27)). The majority concluded that Carpenter’s reasoning applied with equal force to CMS, “since exclusivity is no less important in the context of confidential government information. . . . government agencies have strong interests – both regulatory and economic – in controlling whether, when, and how to disclose confidential information relating to their contemplated rules. . . . Although fraudulent interference with these interests may at times result in monetary loss to the fraud victim, nothing in the Title 18 fraud statutes requires that to be so.’”  Id. at 31-34.  Accordingly, the court held that “in general, confidential government information may constitute government ‘property’ for purposes of 18 U.S.C. §§ 1343 and 1348, and that here, there was sufficient evidence to establish that the CMS information at issue was ‘property’ in the hands of CMS.” Id. at 34. 

The dissent focused on the property issue, stating that because “the predecisional regulatory information at issue here did not constitute CMS property within the meaning of §§ 1343 and 1348, or a thing of value stolen from CMS in violation of § 641, none of defendants’ convictions on substantive counts should stand.” Id. at 48. 

Following the Second Circuit’s December 2019 decision, the Supreme Court issued its Bridgegate opinion, which tossed the convictions of two former New Jersey public officials after finding that a politically motivated scheme to limit access to the George Washington Bridge did not qualify as wire fraud because the alleged purpose was not sufficient to show that the scheme aimed to obtain “money or property.”  In vacating the Second Circuit’s ruling, the Supreme Court instructed the lower court to reconsider its reasoning in light of Bridgegate. 


As we predicted back in May 2020 in analyzing the Bridgegate decision, Bridgegate continues to reverberate throughout cases and courtrooms across the country.  See With unanimity comes clarity: In reversing Bridgegate convictions, a unanimous Supreme Court further narrows scope of federal fraud and corruption prosecutions (8 May 2020).  The Blaszczak remand is yet another signal of the Supreme Court’s ongoing effort to reign in overly expansive government theories of criminal liability in certain cases under the federal fraud statutes, where liability has strayed far beyond the boundaries of the core “fraudulent schemes” to obtain “money and property” that these statutes were intended to target.  The Second Circuit must now reconsider its December 2019 decision after previously declining to do so in April 2020, and the government will bear the burden of proving how confidential government information may suffice as property under the federal fraud statutes. 

Learn more about the implications of this case by contacting any of the authors or your DLA Piper relationship lawyer.