Thursday, April 07, 2016

Judge Rakoff Declines to Recommend Perjury Prosecution of Insider Trading Defendant

By Amanda Maine, J.D.

A securities fraud defendant who made seemingly inconsistent statements in his guilty plea allocution and during his civil trial will not face perjury charges on the formal referral of district court Judge Jed S. Rakoff. However, the judge advised that the SEC is still free to make its own referral to the U.S. Attorney’s Office to investigate possible perjury (SEC v. Payton, April 5, 2016, Rakoff, J.).

Criminal and civil charges. The U.S. attorney and the SEC brought securities fraud charges against the defendant and others, alleging that they traded on inside information ahead of IBM’s acquisition of SPSS, Inc. The defendant pleaded guilty to conspiracy to commit securities fraud and made a number of statements in his allocution to the court regarding his actions.

His guilty plea was later vacated by the court following the Second Circuit’s decision in United States v. Newman, which vacated two guilty verdicts for insider trading in an unrelated case and established a stricter personal benefit standard. The defendant argued that he never admitted that the tipper had received a personal benefit as now required by Newman, and the court agreed. The SEC, confident that it could prove liability even under the Newman standard, continued its civil litigation against the defendant and a jury found him liable for securities fraud on February 29, 2016.

Inconsistent statements. During the defendant’s civil trial, an issue arose of whether he gave testimony that materially conflicted with his now-vacated guilty plea. Judge Rakoff invited counsel from both parties to submit letters about whether he should formally refer the defendant to the U.S. Attorney’s Office for a possible perjury prosecution. While the judge was “deeply troubled” by the inconsistencies, he decided against making a formal referral.

The judge outlined several of the defendant’s arguments against recommending a perjury prosecution, none of which he found particularly convincing. The defendant’s argument that his memory was not as clear at trial as it was during his guilty plea hearing was unpersuasive given that only 15 months had passed between the two. The judge also doubted that the inconsistencies between his plea allocution and his trial testimony were the result of his former counsel “putting words in his mouth” by amending the allocution by colloquy since the defendant did not volunteer affirmative evidence indicating as such.

The defendant also argued that his allocution, when read as a whole, was “somewhat equivocal” on whether he found out about IBM’s pending acquisition of SPSS before or after trading on the information and whether the information was supposed to be confidential. The judge was unconvinced by this argument, stating that the “plain inference” was that the defendant knew the confidential nature of the information before he traded and there was nothing in the plea allocution that would establish otherwise.

No perjury referral. Despite his skepticism regarding Payton’s arguments that he did not commit perjury, the judge declined to formally refer him for a possible perjury prosecution. He noted that the jury had found the defendant liable for securities fraud, so even if he did commit perjury, it may have discredited his testimony. The defendant also faces substantial civil penalties so will, in a way, receive at least some adverse consequence from his seemingly untruthful testimony. The judge also advised that courts should be cautious about making perjury referrals only in exceptional cases so as not to have a “chilling effect” on testimony in suspicious circumstances.

While deciding against making a formal referral, the judge noted that the U.S. Attorney’s Office may conduct its own investigation about the defendant’s possible perjury. Similarly, the SEC itself may bring the issue to the attention of the U.S. attorney, the judge observed.

The case is No. 14-cv-4664.

No comments: