United States Court of Appeals for the Second Circuit · 2019-07-08
Case and law context
Role: rule-announced; posture: criminal insider trading; conviction affirmed after plain-error jury-instruction review; separate restitution remand; result: mixed; claim:
Instances and excluded annotation blocks
| Case | Element | Holding and scope | Variant | Exact source quotations |
|---|---|---|---|---|
| /f3d/929/0063-01 — United States Court of Appeals for the Second Circuit · 2019 | Fraudulent scheme or deceptive course of business | not_reached Excluded from merits counts rule-announced / procedural count: Count One securities fraud; subject: count=Count One securities fraud The confidentiality agreement defeats prejudice on the challenged duty instruction. The court does not newly decide sufficiency of every misappropriation element; the instruction ruling is not a merits instance. | insider-misappropriation/employment-confidentiality | The next morning, on January 28, Afriyie accessed the ADT and Apollo research folders on MSD's shared drive. After doing so, he purchased his first ADT call option. That afternoon, MSD added ADT to its list of "restricted" securities, and Afriyie received an email to this effect. Taken together, the restriction emails Afriyie received informed him that Apollo was planning to acquire ADT. The next day, Afriyie purchased an additional 35 ADT call options. On February 2, although he was not assigned to work on the ADT project, Afriyie accessed documents specific to the Apollo-ADT deal stored on MSD's shared drive. He subsequently purchased over 2,000 additional ADT call options over the course of the ensuing two weeks.Source: docroot/ir/caselaw/f3d_929.jsonl#/f3d/929/0063-01; Unicode character offsets [2322:3047] (end exclusive); SHA-256 dacb34ef671a500f5fe9fe2db4716722b74b4cd01340dbfc18b443985f46e723.Afriyie does not dispute that on his first day of employment with MSD, he signed a confidentiality agreement.Source: docroot/ir/caselaw/f3d_929.jsonl#/f3d/929/0063-01; Unicode character offsets [7928:8037] (end exclusive); SHA-256 dacb34ef671a500f5fe9fe2db4716722b74b4cd01340dbfc18b443985f46e723.Under Chestman , "a person violates [ 17 C.F.R. § 240.10b-5 ] when he misappropriates material nonpublic information in breach of a fiduciary duty or similar relationship of trust and confidence and uses that information in a securities transaction."Source: docroot/ir/caselaw/f3d_929.jsonl#/f3d/929/0063-01; Unicode character offsets [5947:6197] (end exclusive); SHA-256 dacb34ef671a500f5fe9fe2db4716722b74b4cd01340dbfc18b443985f46e723.Accordingly, any error in the district court's instruction did not result in prejudice; viewing the charge actually given as a whole, see United States v. Feliciano , 223 F.3d 102, 116 (2d Cir. 2000), the outcome of the trial would have been the same had Afriyie received the instruction he sought.Source: docroot/ir/caselaw/f3d_929.jsonl#/f3d/929/0063-01; Unicode character offsets [8359:8657] (end exclusive); SHA-256 dacb34ef671a500f5fe9fe2db4716722b74b4cd01340dbfc18b443985f46e723. |
| /f3d/929/0063-01 — United States Court of Appeals for the Second Circuit · 2019 | Additional criminal mental-state requirement | not_reached Excluded from merits counts rule-announced / merits count: Count One securities fraud; subject: count=Count One securities fraud The affirmed instruction leaves proof of knowing, willful, intentional fraud beyond reasonable doubt with the government. No finding that civil recklessness alone proves criminal willfulness is encoded. | criminal-instruction/burden-and-good-faith | On February 16, Apollo publicly announced its planned acquisition of ADT. ADT's stock price rose by 47.5%, and the value of Afriyie's investment in ADT call options increased by 6,000% in one day. Over the course of the following week, Afriyie sold his options for a total profit of $1,564,071.60. In late February and March 2016, he wired a portion of the proceeds out of his brokerage account and into a separate savings account.Source: docroot/ir/caselaw/f3d_929.jsonl#/f3d/929/0063-01; Unicode character offsets [3048:3479] (end exclusive); SHA-256 dacb34ef671a500f5fe9fe2db4716722b74b4cd01340dbfc18b443985f46e723.If the government proves beyond a reasonable doubt ... that the defendant engaged in an insider trading scheme, it must then prove that the defendant engaged in that scheme knowingly, willfully, and with intent to defraud MSD Capital .... It is for you to determine whether the government has established beyond a reasonable doubt such knowledge and intent on the part of the defendant.Source: docroot/ir/caselaw/f3d_929.jsonl#/f3d/929/0063-01; Unicode character offsets [9094:9480] (end exclusive); SHA-256 dacb34ef671a500f5fe9fe2db4716722b74b4cd01340dbfc18b443985f46e723.Because an essential element of the crime charged is intent to defraud, good faith on the part of the defendant is a complete defense to the charge of insider trading. That is, the law is not violated if the defendant held an honest belief that his acts were proper and not [in] furtherance of any unlawful scheme. A person who acts on a belief or reason honestly held that turns out to be wrong is not punishable under these statutes.Source: docroot/ir/caselaw/f3d_929.jsonl#/f3d/929/0063-01; Unicode character offsets [9481:9916] (end exclusive); SHA-256 dacb34ef671a500f5fe9fe2db4716722b74b4cd01340dbfc18b443985f46e723.There was therefore no error in the district court's good faith instruction.Source: docroot/ir/caselaw/f3d_929.jsonl#/f3d/929/0063-01; Unicode character offsets [10670:10746] (end exclusive); SHA-256 dacb34ef671a500f5fe9fe2db4716722b74b4cd01340dbfc18b443985f46e723. |
Court interpretations recorded from this case
interpretation
Under Chestman , "a person violates [ 17 C.F.R. § 240.10b-5 ] when he misappropriates material nonpublic information in breach of a fiduciary duty or similar relationship of trust and confidence and uses that information in a securities transaction."
/f3d/929/0063-01 — United States Court of Appeals for the Second Circuit · 2019
Under Chestman , "a person violates [ 17 C.F.R. § 240.10b-5 ] when he misappropriates material nonpublic information in breach of a fiduciary duty or similar relationship of trust and confidence and uses that information in a securities transaction."Source:
docroot/ir/caselaw/f3d_929.jsonl#/f3d/929/0063-01; Unicode character offsets [5947:6197] (end exclusive); SHA-256 dacb34ef671a500f5fe9fe2db4716722b74b4cd01340dbfc18b443985f46e723.Rule 10b-5(a)/(c) can reach a person who is not the maker of a statement; Lorenzo as applied in Malouf is an SEC scheme-liability holding. It does not create private aiding-and-abetting liability or dispense with the private plaintiff's separate reliance requirement. Insider misappropriation requires a duty/trust relationship and deceptive use of material nonpublic information, not possession alone.
interpretation
If the government proves beyond a reasonable doubt ... that the defendant engaged in an insider trading scheme, it must then prove that the defendant engaged in that scheme knowingly, willfully, and with intent to defraud MSD Capital .... It is for you to determine whether the government has established beyond a reasonable doubt such knowledge and intent on the part of the defendant.
/f3d/929/0063-01 — United States Court of Appeals for the Second Circuit · 2019
If the government proves beyond a reasonable doubt ... that the defendant engaged in an insider trading scheme, it must then prove that the defendant engaged in that scheme knowingly, willfully, and with intent to defraud MSD Capital .... It is for you to determine whether the government has established beyond a reasonable doubt such knowledge and intent on the part of the defendant.Source:
docroot/ir/caselaw/f3d_929.jsonl#/f3d/929/0063-01; Unicode character offsets [9094:9480] (end exclusive); SHA-256 dacb34ef671a500f5fe9fe2db4716722b74b4cd01340dbfc18b443985f46e723.Criminal prosecution derives its willfulness requirement from §78ff(a), not express wording in §78j(b). Afriyie approved knowing/willful/intent-to-defraud instructions in an insider-trading prosecution and held the government retained the beyond-reasonable-doubt burden. The precise instruction must fit the charged theory.