New York State, among other states, has a “shield law” that gives journalists the right to keep their sources confidential. This law may prove problematic for cases of insider trading. Consider the following recent scenario: Reorg Research Inc (“Reorg”), a subscriber newsletter that covers bankruptcy and distressed debt, published an article about Murray Energy Corporation (“Murray”), one of the largest coal mining companies in the US. Given the confidential nature of the information published, Murray assessed that the information had to have come from some of its private investors, and as such the disclosure of this information to Reorg constituted a breach of Murray confidentiality covenants.
Murray proceeded to sue Reorg, (Murray Energy Corporation v. Reorg Research Inc. 55 Misc.3d 669, 47 N.Y.S.3d 871, 45 Media L. Rep. 1301, 2017 N.Y. Slip Op. 27036) demanding that the source who disclosed information on Murray financials be revealed. The court ordered Reorg to reveal the sources. Reorg appealed, and on July 13, 2017 won the appeal, with the Supreme Court Appellate Division First Department of New York ruling: “we find that the Respondent is except from having to disclose names of its confidential sources from New York’s Shield Law, because it is a professional medium or agency which has one of its main functions the dissemination of news to the public.”
The court made the determination that despite the fact Reorg has only 375 subscriber firms who each pay tens of thousands of dollars a year for access to the publication, Reorg covers a niche market—distressed debt—that is of vital public interest. According to the court, Respondents argued persuasively that the public benefits secondarily from the information Reorg provides to its high paying subscribers, because that audience is comprised of “people most interested in this information and most able to benefit from it” and from this network distributes the information and its pricing effects to the wider public.