Remember, back in 2014, when a federal appeals court overturned the convictions of two hedge-fund managers who’d been caught up in then U.S. attorney Preet Bharara’s crackdown on insider trading on Wall Street?

Though Bharara had won almost 80 convictions to that point, the pro-defense ruling, known as United States v. Newman, threw a wrench in the works. Bharara had to toss out a number of cases—including several against defendants who had already pleaded guilty.

Well, just this past December, the same court that issued Newman—the U.S. Court of Appeals for the Second Circuit—spun 180 degrees and handed down a startlingly pro-prosecution ruling in yet another insider-trading case. The recent one, known as United States v. Blaszczak, effectively sweeps away obstacles that have hampered prosecutors in insider-trading cases for 36 years, freeing them to pursue cases that even Bharara might have balked at.

Which may sound like great news. Few crimes get under our skin like insider trading—a crime whereby the filthy rich get filthier rich. When we think of cartoon villains like Ivan Boesky, Michael Milken, and the fictional Gordon Gekko, how can we not cheer a ruling that helps put them away?

Alas, there’s some collateral damage. Taken to its logical extreme, the ruling seems to permit the prosecution of many whistleblowers and reporters, too.

No Good Deed Goes Unpunished

Here’s what happened. According to the findings of a Manhattan federal jury in May 2018, a federal employee inside the Centers for Medicare & Medicaid Services (C.M.S.) was leaking confidential agency information to a “political intelligence consultant” named David Blaszczak. The information was about upcoming changes in Medicare reimbursement policies for certain medical procedures, which would have an impact on the stock values of affected medical manufacturers. Blaszczak, in turn, was providing this information to several clients, including three analysts at the Deerfield Management hedge fund. Based on their recommendations, Deerfield traded on the information, making more than $7 million off of four tips. Four of the men were convicted—the fifth, one of the analysts, had become a cooperating witness—and, on December 30, the appeals panel affirmed by a 2–1 vote.

All good so far. But here’s where the problems start: The men weren’t convicted under the securities-fraud statute, which is the one typically used for insider-trading prosecutions. In fact, they were all acquitted under that law.

Few crimes get under our skin like insider trading—a crime whereby the filthy rich get filthier rich.

Instead, they were convicted under two federal felony laws that have nothing to do with securities trading per se, but which have been successfully applied in the past to prosecute people who stole government property. Specifically, they were convicted of “conversion” and “wire fraud,” on the theory that the confidential C.M.S. information that was leaked was federal “property,” and that the act of disclosing it to others amounted to criminal misappropriation. (The “wire” in wire fraud simply means that the defendants at some point communicated by e-mail or phone.)

You see the problem? Read broadly, the opinion means that a federal whistleblower who leaks confidential government information to a reporter may be committing the crime of conversion and, if an e-mail or phone call is used, wire fraud too. Conversion can fetch a sentence of up to 10 years imprisonment, while penalties for wire fraud range up to 30 years. The wire-fraud theory could also be used against state employees who leak confidential information to reporters, since wire fraud is not limited to thefts of federal property. Theoretically, reporters could be prosecuted, too, so long as they knew the information they received was confidential.

“The mere act of disclosure—if the whistleblower or leaker knows that the information is confidential—that’s the crime right there,” says Donald Verrilli Jr., a former U.S. solicitor general, who now represents one of the hedge-fund defendants. “That’s what this opinion says.”

Early this month, Verrilli filed a petition for a re-hearing before the full, 13-judge Second Circuit and, if that fails, he says he’ll seek Supreme Court review.

“A broad interpretation of this decision could be disastrous to the First Amendment,” says Stephen Kohn, the author of The Whistleblower’s Handbook and an attorney who has represented whistleblowers for 35 years. “If you can go after whistleblowers under wire fraud,” he continues, “it’s going to have a crippling effect on both whistleblowers and the press.”

“Tippers” v. “Tippees”

At the oral argument last November, Assistant U.S. Attorney Sarah Eddy didn’t deny that the theory of the case could raise issues for whistleblowers and reporters. She argued, instead, that the court didn’t have to reach those questions because the defendants in this case weren’t trying to publish information the public had a right to know. “If there were a public-dissemination concern, then there might be some First Amendment issues that come into play,” she said. “They’re not in play here.”

In ordinary times, one might trust prosecutors not to abuse their discretion by going after whistleblowers with precedents designed to nab insider traders. But these aren’t ordinary times. A senator has vowed to drag “the Whistleblower”—the one whose lawful complaint to an inspector general led to the impeachment of the president—before the Senate Intelligence Committee, for public exposure and browbeating, apparently to deter others from following in his footsteps. The president is trying to block publication of his former national-security adviser’s memoir, implausibly alleging that it contains “Top Secret” information, while calling for a criminal investigation of the leaks that have already occurred. And federal prosecutors are reportedly investigating the president’s former F.B.I. director for information allegedly leaked to the press years ago that is now said to have been classified.

“A broad interpretation of this decision could be disastrous to the First Amendment.”

Though Kohn and Verrilli agree that the ruling poses a threat to whistleblowers, they disagree about what needs to be done as a result. To understand their differing perspectives, we need to step back and look at the broader legal landscape.

The Second Circuit’s about-face from Newman to Blaszczak is just the latest manifestation of the “pinball-like” path that insider-trading precedents have taken since at least 1983, according to an upcoming Fordham Law Review article by Professor Donald Langevoort of Georgetown University Law Center. That was the year the Supreme Court decided Dirks v. Securities and Exchange Commission. The case law has “wobbled” back and forth since then, Langevoort writes, as judges have tried to interpret that vexing case.

Dirks was, in fact, a bizarre species of whistleblower case. An insider at an insurance company, Ronald Secrist, became aware of a fraud going on at the firm. He told regulators about it, but they didn’t immediately act. Then he told Raymond Dirks, a broker-dealer who advised investment funds. Dirks told The Wall Street Journal, but the paper initially declined to write about it, fearing a libel suit. Finally, Dirks told his clients, who dumped their positions in the company, causing the stock price to crater. That got the S.E.C.’s attention. It finally charged the insurer with fraud, but it also charged Dirks civilly with insider trading. He was found liable, and his appeal eventually reached the high court.

In a 6–3 ruling led by Justice Lewis Powell Jr., the Supreme Court exonerated Dirks. Powell began by focusing on whether Secrist, the “tipper” from inside the insurance company, had done anything wrong. He hadn’t, Powell decided. Though Secrist had leaked material non-public information to Dirks, he had acted selflessly, receiving no “personal benefit” in exchange—no briefcase full of cash, for instance. And if the tipper, Secrist, hadn’t committed fraud, it followed that the “tippee,” Dirks, was also blameless, because a tippee’s liability derives from the tipper’s. In addition, Powell wrote, for a tippee to be liable, not only must the government prove that the tipper got a personal benefit, but also that the tippee knew, or should have known, that he did.

Is There a “Personal Benefit”?

The “personal benefit” requirement has been wildly controversial ever since. Securities-industry analysts love the requirement and, indeed, depend on it. Their job is to dig for every scrap of information about a company they can find, so that their clients—and, consequently, the market—will have accurate information about stock values. The Dirks ruling protects analysts from facing criminal liability for inadvertently using information that, unbeknownst to them, came from a forbidden source. (Justice Powell had been a corporate-securities lawyer before taking the bench.)

But prosecutors and the Securities and Exchange Commission hate the personal-benefit requirement. It lets a lot of scummy conduct off the hook, and makes it almost impossible to prosecute so-called remote tippees, like big-shot hedge-fund managers. That’s what happened in Newman. An insider at Nvidia tipped off an intermediary, who tipped off another intermediary, who passed the information to an analyst at one hedge fund, who shared it with an analyst at another hedge fund, who passed it up the line to Todd Newman, the portfolio manager at Diamondback Capital, who traded on it. But since prosecutors couldn’t prove that Newman knew what sort of personal benefit—if any—the original tipper at Nvidia had received, his conviction had to be reversed.

In ordinary times, one might trust prosecutors not to abuse their discretion by going after whistleblowers with precedents designed to nab insider traders. But these aren’t ordinary times.

Frustrating, right? And though aspects of Newman were later discredited by a Supreme Court case, the personal-benefit requirement remains intact.

So, prosecutors bringing the Blaszczak case realized that, regardless of how much money Deerfield made off the confidential information leaked to them, their whole case hinged on being able to prove that the tipper inside the Centers for Medicare and Medicaid Services—a man named Christopher Worrall—had received some “personal benefit” in exchange for leaking information to the political consultant, Blaszczak.

And the evidence of that was very weak. Worrall and Blaszczak were old friends. Worrall apparently leaked over lunches, mainly out of friendship. He knew what Blaszczak would do with it, but he wasn’t paid off. Sometimes the two of them discussed the prospect of Blaszczak helping Worrall get a high-paying private-sector job, prosecutors argued, and Blaszczak once arranged a meeting for Worrall in pursuit of one—but that was about it.

Recognizing the weakness of its case because of Dirks, prosecutors also charged the defendants with conversion and wire fraud. While the court instructed the jury about the prosecution’s need to prove “personal benefit” to convict under the securities-fraud statute, the trial judge decided, at the prosecutors’ urging, that no such instruction was needed to prove conversion or wire fraud.

The Second Circuit then affirmed, 2–1. The opinion was written by Judge Richard Sullivan, who happens to have been the trial judge who, in 2012, presided over the conviction of hedge-fund manager Todd Newman—the conviction that was overturned by the Second Circuit in 2014 due to a failure to prove personal benefit.

Looking to the Supreme Court

Should this ruling stand? As far as the danger it poses for leakers and the press, Kohn, the whistleblower lawyer, says he would have no problem with it, so long as a court explicitly cabined its interpretation with some clarifying language.

“If this were to go to the Supreme Court,” Kohn says, “I believe the news media should get involved to ensure that there’s actual language [inserted in the ruling] that interprets this case consistent with the First Amendment and freedom of the press and the rights of whistleblowers.”

Verrilli, a lawyer for one of the convicted analysts, insists that the case must be thrown out entirely. Among other things, he argues that the jury acquitted the defendants of the only insider-trading charges for which they were properly instructed on “personal benefit.” To allow the government to convict them under other statutes, without proving personal benefit to the tipper, would simply amount to a brazen end run around Dirks.

“I think the Court’s going to be quite surprised to find that its Dirks decision of 40 years ago was, for all practical purposes, a nullity,” Verrilli says. “Because the government could have just charged the same crime under these different statutes and avoided any need to prove personal benefit. I just think the Court’s going to find that astounding.”

Verrilli’s argument seems strong. If it prevails, that would render moot the issues the prosecution’s theory raises for whistleblowers. At least for now.

Roger Parloff is a writer based in New York City