By Mark S. Nelson, J.D.
The Second Circuit issued a summary order upholding a district court jury verdict holding Daryl Payton and Benjamin Durant liable for insider trading. The court rejected claims by Payton and Durant that the SEC failed to prove the breach of a duty of confidentiality and rebuffed arguments that they deserved a new trial because of other trial irregularities (SEC v. Payton, per curiam, February 13, 2018).
The case arose when an associate at a large law firm handling IBM’s acquisition of SPSS, Inc. told a friend about the pending deal; that friend then told a broker who in turn told Payton of the deal. Durant also learned of the IBM-SPSS deal. According to the summary order, Payton admitted at trial that he and Durant bought short-term options in SPSS. Both Payton and Durant profited handsomely from the trades: Payton received nearly $244,000 and Durant received more than $606,000.
Verdict stands. Payton and Durant argued that they were entitled to judgment as a matter of law because a reasonable juror could not find for the SEC. Specifically, Payton and Durant cited a text message from the law firm associate’s friend for the proposition that that friend owed no duty of confidentiality to the law firm associate. The law firm associate’s friend and the broker also testified that benefits received by the associate’s friend from the broker had nothing to do with the SPSS tip. Moreover, Payton testified that deal rumors are common and that the broker was inexperienced such that Payton and the other defendants did not consciously avoid discovering the source of the SPSS tip.
But the court, applying a de novo standard of appellate review, said the jury could have inferred that the law firm associate never intended for his friend to trade on or share confidential information, that the friend had a duty to the associate, that the broker’s email attempt to help the associate’s friend with to deal with an arrest for destruction of property could serve as a quid pro quo, and that the jury could infer Payton’s and the other defendants’ conscious avoidance based on their clandestine meeting at a hotel the day the IBM-SPSS deal was announced for the purpose of hiding their trades.
Other alleged trial irregularities. The Second Circuit also quickly dispatched Payton’s and Durant’s arguments for a new trial based on their complaints about the jury instructions. The defendants had argued that the instruction told jurors they could find the law firm associate’s friend owed the associate a duty of confidentiality even if the associate intended for the friend to trade on the information. Instead, the court said the jury instruction was agnostic in that regard and simply, accurately stated the elements of the SEC’s claim.
As for the challenged evidentiary rulings, the court found no support for Payton’s and Durant’s arguments. In one instance, the court found that the defendants failed to lay the foundation for a possible hearsay exception for a declarant's then-existing state of mind. In another instance, the court concluded that the challenged evidence was either admissible as a statement against interest or that the evidence was not prejudicial.
The case is No. 17-290-cv.