United States v. Newman

773 F.3d 438 (2014)

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Nature of the Case

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Facts

United States (P) alleged that a cohort of analysts at various hedge funds and investment firms obtained material, nonpublic information from employees of publicly traded technology companies, shared it amongst each other, and subsequently passed this information to the portfolio managers at their respective companies. P charged D, a portfolio manager with willfully participating in this insider trading scheme by trading in securities based on the inside information illicitly obtained by this group of analysts. At trial, P presented evidence that a group of financial analysts exchanged information they obtained from company insiders, both directly and more often indirectly. Specifically, P alleged that these analysts received information from insiders at Dell and NVIDIA disclosing those companies' earnings numbers before they were publicly released. These analysts then passed the inside information to their portfolio managers, including Ds, who, in turn, executed trades in Dell and NVIDIA stock, earning approximately $4 million and $68 million, respectively, in profits for their respective funds. Ds were several steps removed from the corporate insiders, and there was no evidence that either was aware of the source of the inside information. At the close of evidence, Ds moved for a judgment of acquittal pursuant to Federal Rule of Criminal Procedure 29. They argued that there was no evidence that the corporate insiders provided inside information in exchange for a personal benefit which is required to establish tipper liability under Dirks. Because a tippee's liability derives from the liability of the tipper, Ds argued that they could not be found guilty of insider trading. There was no evidence that Ds knew about any benefit from the information. Absent such knowledge, Ds argued, they were not aware of, or participants in, the tippers' fraudulent breaches of fiduciary duties to Dell or NVIDIA, and could not be convicted of insider trading under Dirks. The district court instructed the jury: To meet its burden, P must also prove beyond a reasonable doubt that Ds knew that the material, nonpublic information had been disclosed by the insider in breach of a duty of trust and confidence. The mere receipt of material, nonpublic information by Ds, and even trading on that information is not sufficient; he must have known that it was originally disclosed by the insider in violation of a duty of confidentiality. Ds were found guilty and appealed.