By Amy Leisinger, J.D.
An individual has petitioned the Supreme Court to vacate and remand a Second Circuit decision upholding his insider trading conviction. According to the petitioner, the Court must resolve whether the personal benefit element of insider trading requires the government to show that the insider tipped material, nonpublic information in order to obtain tangible, pecuniary gain as opposed to minimal or intangible benefits. The petitioner notes that this issue is under consideration in another matter before the court (Salman v. U.S.) and requests that the court hold his petition pending its determination in that case (Riley v. U.S., June 13, 2016).
Questioned activities. From at least 2007 through 2009, the petitioner would meet with an analyst from Artis Capital Management, LP, to whom he conveyed information concerning a planned acquisition of the petitioner’s firm. Artis then acquired larger positions in the firm, and the share price rose dramatically following the public announcement of the acquisition. When the acquiring company had trouble securing financing, the petitioner spoke to the analyst, and Artis sold the securities short, avoiding significant losses.
Previous determinations. The petitioner was convicted of securities fraud and conspiracy to commit securities fraud, and the Southern District of New York denied a motion for a judgment of acquittal or a new trial, finding that U.S. v. Newman acknowledged that a tipper has received a personal benefit when there is “‘a relationship between the insider and the recipient that suggests a quid pro quo from the latter” and that the petitioner obtained business and career assistance from the analyst, as well as stock tips. The court refused to grant judgment notwithstanding the verdict, noting that there was sufficient evidence to support the jury’s conclusions. According to the court, “[a]lthough the [c]ourt’s instructions to the jury would have been different following Newman, the evidence adduced at trial left no reasonable doubt.”
The Second Circuit affirmed the conviction, ruling that the trial evidence was sufficient to support the jury’s determinations, that a jury would have found the defendant guilty regardless of the instructions given, and that the law did not require proof of the motive for receiving the personal benefit to support the conviction.
Personal benefit. The petitioner argues that his interaction with the analyst did not involve a quid pro quo or any effort to exploit the material, nonpublic information for his personal gain. In Newman, he stated, the court narrowed the definition of “personal benefit” to exclude the mere fact of a friendship without additional proof of a close relationship that generates an exchange that is objective and consequential and represents at least a potential gain of a pecuniary or valuable nature. The purported personal benefit in this case involves business and career advice and a couple of stock tips, the petitioner contends, “gestures that, as the district court aptly noted at sentencing, amounted to ‘essentially nothing’ or ‘peanuts.’” These intangible and de minimis benefits do not satisfy the personal benefit required to support an insider trading conviction, he said.
In the district court, the petitioner continues, a jury instruction improperly stated that the jury only needed to find some anticipated personal benefit of some kind and that it did not need to be financial or tangible. The jury was also incorrectly informed that motive was not an element of insider trading, he argues. As the dissent in the Court’s Dirks v. SEC notes, the law imposes a motivational requirement on the fiduciary duty doctrine, and the jury was correct to focus on motive, the petitioner states. The reason for the disclosure does matter, and, without anticipation of personal benefit or a personal gain, there is no breach of duty, he explained.
The petitioner asks the Court to hold his petition until resolving the substantially similar “personal benefit” question in the pending Salman case as to whether Dirks requires proof of an exchange representing at least a potential pecuniary or valuable gain. A favorable determination in Salman will affect the view of the sufficiency of evidence, jury instructions, and the motive question addressed in the petition, the petitioner concludes.
The case is No. 15-1511.