Katzmann, Chief Judge:
Defendant-appellant Mathew Martoma was convicted, following a four-week jury trial, of one count of conspiracy to commit securities fraud in violation of 18 U.S.C. § 371 and two counts of securities fraud in violation of 15 U.S.C. §§ 78j(b) & 78ff in connection with an insider trading scheme. Martoma argues primarily that the evidence presented at trial was insufficient to support his conviction and that the district court did not properly instruct the jury in light of the Second Circuit's decision in United States v. Newman, 773 F.3d 438 (2d Cir. 2014), issued after Martoma was convicted. This appeal is our first occasion to consider Newman in the aftermath of the Supreme Court's recent decision in Salman v. United States, ___ U.S. ___, 137 S.Ct. 420, 196 L.Ed.2d 351 (2016). We hold that the logic of Salman abrogated Newman's "meaningfully close personal relationship" requirement and that the district court's jury instruction was not obviously erroneous. Further, any instructional error would not have affected Martoma's substantial rights because the government presented overwhelming evidence that at least one tipper received a financial benefit from providing confidential information to Martoma. As a result, we
Martoma's convictions stem from an insider trading scheme involving securities of two pharmaceutical companies, Elan Corporation, plc ("Elan") and Wyeth, that were jointly developing an experimental drug called bapineuzumab to treat Alzheimer's disease. Martoma worked as a portfolio manager at S.A.C. Capital Advisors, LLC ("SAC"), a hedge fund owned and managed by Steven A. Cohen. In that capacity, Martoma managed an investment portfolio with buying power of between $400 and $500 million that was focused on pharmaceutical and healthcare companies. He also recommended investments to Cohen, who managed SAC's largest portfolio. While at SAC, Martoma began to acquire shares in Elan and Wyeth in his portfolio and recommended that Cohen acquire shares in the companies as well.
In order to obtain information about bapineuzumab, Martoma contacted expert networking firms and arranged paid consultations with doctors knowledgeable about Alzheimer's disease, including two who were working on the bapineuzumab clinical trial. Dr. Sidney Gilman, chair of the safety monitoring committee for the bapineuzumab clinical trial, participated in approximately 43 consultations with Martoma at the rate of around $1,000 per hour.
On June 17, 2008, Elan and Wyeth issued a press release regarding the results of "Phase II" of the bapineuzumab clinical trial. The press release described the preliminary results as "encouraging," with "clinically meaningful benefits in important subgroups" of Alzheimer's patients with certain genetic characteristics, but indicated that the drug had not proven effective in the general population of Alzheimer's patients. J.A. 547. The press release further stated that the results of the trials would be presented in greater detail at the International Conference on Alzehimer's Disease to be held on July 29, 2008. Elan's share price increased following the press release.
In mid-July of 2008, the sponsors of the bapineuzumab trial selected Dr. Gilman to present the results at the July 29 conference. It was only at this point that Dr. Gilman was unblinded as to the final efficacy results of the trial. Dr. Gilman was "initially euphoric" about the results, but identified "two major weaknesses in the data" that called into question the efficacy of the drug as compared to the placebo. Tr. 1419-20. On July 17, 2008, the day after being unblinded to the results, Dr. Gilman spoke with Martoma for about 90 minutes by telephone about what he had learned. That same day, Martoma purchased a plane ticket to see Dr. Gilman in person at his office in Ann Arbor, Michigan. That meeting occurred two days later, on July 19, 2008. At that meeting, Dr. Gilman showed Martoma a PowerPoint presentation containing the efficacy results and discussed the data with him in detail.
The next morning, Sunday, July 20, Martoma sent Cohen, the owner of SAC, an email with "It's important" in the subject line and asked to speak with him by telephone. The two had a telephone conversation lasting about twenty minutes, after which Martoma emailed Cohen a summary of SAC's Elan and Wyeth holdings. The day after Martoma spoke to Cohen, on July 21, 2008, SAC began to reduce its position in Elan and Wyeth securities by entering into short-sale and options trades that would be profitable if Elan's and Wyeth's stock fell.
Dr. Gilman publicly presented the final results from the bapineuzumab trial at the International Conference on Alzehimer's Disease in the afternoon of July 29, 2008. Elan's share price began to decline during Dr. Gilman's presentation and at the close of trading the next day, the share prices of Elan's and Wyeth had declined by about 42% and 12%, respectively. The trades that Martoma and Cohen made in advance of the announcement resulted in approximately $80.3 million in gains and $194.6 million in averted losses for SAC. Martoma
The procedural history of this case is inextricably intertwined with recent developments in insider trading law. Insider trading is a violation of § 10(b) of the Securities Exchange Act of 1934, codified at 15 U.S.C. § 78j(b), and Rule 10b-5, promulgated by the Securities and Exchange Commission ("SEC") and codified at 17 C.F.R. § 240.10b-5. The Supreme Court has long held that there is no "general duty between all participants in market transactions to forgo actions based on material, nonpublic information." Chiarella v. United States, 445 U.S. 222, 233, 100 S.Ct. 1108, 63 L.Ed.2d 348 (1980). However, the "traditional" or "classical theory" of insider trading provides that a corporate insider violates § 10(b) and Rule 10b-5 when he "trades in the securities of his corporation on the basis of material, non-public information" because "a relationship of trust and confidence [exists] between the shareholders of a corporation and those insiders who have obtained confidential information by reason of their position with that corporation." United States v. O'Hagan, 521 U.S. 642, 651-52, 117 S.Ct. 2199, 138 L.Ed.2d 724 (1997) (alteration in original) (quoting Chiarella, 445 U.S. at 228, 100 S.Ct. 1108). Similarly, the "misappropriation theory" of insider trading provides "that a person ... violates § 10(b) and Rule 10b-5[] when he misappropriates confidential information for securities trading purposes, in breach of a duty owed to the source of the information." Id. at 652, 117 S.Ct. 2199. It is thus the breach of a fiduciary duty or other "duty of loyalty and confidentiality" that is a necessary predicate to insider trading liability. See id.
In Dirks v. S.E.C., 463 U.S. 646, 103 S.Ct. 3255, 77 L.Ed.2d 911 (1983), the Supreme Court held that a "tippee" — someone who is not a corporate insider but who nevertheless receives material nonpublic information from a corporate insider, or "tipper," and then trades on the information — can also be held liable under § 10(b) and Rule 10b-5, but "only when the insider has breached his fiduciary duty to the shareholders by disclosing the information to the tippee and the tippee knows or should know that there has been a breach." Id. at 660, 103 S.Ct. 3255.
Id. at 664, 103 S.Ct. 3255. Building on this language, we have observed that "[p]ersonal benefit is broadly defined to include not only pecuniary gain, but also, inter alia, any reputational benefit that will translate into future earnings and the benefit one would obtain from simply making a gift of confidential information to a trading relative or friend." United States v. Jiau, 734 F.3d 147, 153 (2d Cir. 2013) (alterations, citations, and internal quotation marks omitted).
Accordingly, the district court instructed the jury in Martoma's trial that:
Tr. 3191.
After Martoma was convicted and while his appeal was pending, we considered one of the situations described in Dirks — giving a "gift" of inside information to "a trading relative or friend" — in greater detail in United States v. Newman, 773 F.3d 438 (2d Cir. 2014). The Court noted "that [p]ersonal benefit is broadly defined." Id. at 452 (quoting Jiau, 734 F.3d at 153) (internal quotation marks omitted). The Court went on, however, to state:
Id. at 452 (citation omitted).
Based on this language from Newman, Martoma challenged on appeal both the sufficiency of the evidence presented at his trial and the adequacy of the instructions given to the jury. Martoma argued that he and Dr. Gilman did not have a "meaningfully close personal relationship" and that
Shortly after we held oral argument, however, the Supreme Court granted certiorari in Salman v. United States, see ___ U.S. ___, 136 S.Ct. 899, 193 L.Ed.2d 788 (2016), and issued a decision in the case on December 6, 2016. See ___ U.S. ___, 137 S.Ct. 420, 196 L.Ed.2d 351 (2016). The defendant in Salman argued that a "gift of confidential information to a trading relative or friend," id. at 426 (quoting Dirks, 463 U.S. at 664, 103 S.Ct. 3255), was insufficient to establish insider trading liability "unless the tipper's goal in disclosing inside information [wa]s to obtain money, property, or something of tangible value." Id. In other words, the defendant in Salman urged the Supreme Court to adopt a standard similar to the ruling in Newman. The Supreme Court declined to do so and instead "adhere[d] to Dirks," which contained a "discussion of gift giving [that] resolve[d] the case." Id. at 427. According to the Salman Court:
Id. at 428. The Supreme Court also mentioned the Newman decision, observing that "[t]o the extent the Second Circuit held that the tipper must also receive something of a `pecuniary or similarly valuable nature' in exchange for a gift to family or friends, ... this requirement is inconsistent with Dirks." Id. (quoting Newman, 773 F.3d at 452).
In light of Salman, we requested additional briefing from the parties and scheduled a second round of oral argument to address how Salman affects this case.
As noted above, Martoma challenges both the sufficiency of the evidence presented at trial and the adequacy of the district court's jury instruction. A defendant challenging the sufficiency of the evidence "bears a heavy burden," and "the standard of review is exceedingly deferential." United States v. Coplan, 703 F.3d 46, 62 (2d Cir. 2012) (citations and internal quotation marks omitted). "In evaluating a sufficiency challenge, we `must view the evidence in the light most favorable to the government, crediting every inference that
With respect to Martoma's challenge to the district court's jury instruction, "[w]e review a jury charge in its entirety and not on the basis of excerpts taken out of context." United States v. Mitchell, 328 F.3d 77, 82 (2d Cir. 2003) (quoting United States v. Zvi, 168 F.3d 49, 58 (2d Cir. 1999)). "A conviction based on a general verdict is subject to challenge if the jury was instructed on alternative theories of guilt and may have relied on an invalid one." Hedgpeth v. Pulido, 555 U.S. 57, 58, 129 S.Ct. 530, 172 L.Ed.2d 388 (2008). Such a challenge, however, is subject to harmless error review. See id. at 58, 61-62, 129 S.Ct. 530. And because Martoma raises his challenge to the jury instruction for the first time on appeal, we review only for plain error. United States v. Vilar, 729 F.3d 62, 70 (2d Cir. 2013). Under the plain error standard, an appellant must demonstrate that "(1) there is an error; (2) the error is clear or obvious, rather than subject to reasonable dispute; (3) the error affected the appellant's substantial rights...; and (4) the error seriously affects the fairness, integrity or public reputation of judicial proceedings."
We first evaluate Martoma's sufficiency challenge. In Newman, the Court noted that "the tipper's gain need not be immediately pecuniary," and, invoking United States v. Jiau, 734 F.3d 147 (2d Cir. 2013), explained that "enter[ing] into a
Because the evidence presented at trial was sufficient to sustain Martoma's conviction, we turn next to his challenge to the district court's jury instruction. His argument on this front focuses on the theory, originating in Dirks, that the personal benefit necessary to establish insider trading liability in a tipping case can be inferred from a gift of inside information "to a trading relative or friend." See Dirks, 463 U.S. at 663-64, 103 S.Ct. 3255; Salman, 137 S.Ct. at 428. As noted above, Newman held that this inference was "impermissible in the absence of proof of a meaningfully close personal relationship." 773 F.3d at 452. Martoma argues that this requirement survives the Supreme Court's decision in Salman and that the jury was not properly instructed on it. Following the logic of the Supreme Court's reasoning in Salman, interpreting Dirks, we think that Newman's "meaningfully close personal relationship" requirement can no longer be sustained.
The Supreme Court explained in Dirks that a tippee who knowingly trades on material nonpublic information obtained from an insider does not necessarily violate insider trading law. See 463 U.S. at 658-59, 103 S.Ct. 3255. But "[t]he conclusion that recipients of inside information do not invariably acquire a duty to disclose or abstain does not mean that such tippees always are free to trade on the information." Id. at 659, 103 S.Ct. 3255. Instead, "the tippee's duty to disclose or abstain is derivative from that of the insider's duty." Id. at 659, 103 S.Ct. 3255. "Thus, some tippees must assume an insider's duty to the shareholders not because they receive inside information, but rather because it has been made available to them improperly." Id. at 660, 103 S.Ct. 3255 (emphasis in original). As a result, "a tippee assumes a fiduciary duty ... not to trade on material nonpublic information only when the insider has breached his fiduciary duty ... by disclosing the information to the tippee and the tippee knows or should know that there has been a breach." Id. at 660, 103 S.Ct. 3255.
Dirks further observed that "[w]hether disclosure is a breach of duty ... depends
Newman, however, did view these examples as limiting the situations in which a personal benefit could be inferred. As relevant to this case, Newman held that the jury was never permitted to infer that a tipper had personally benefitted from disclosing inside information as a gift unless that gift was made to someone with whom the tipper had "a meaningfully close personal relationship," 773 F.3d at 452, seeking to give definition to the "friend" language from Dirks.
Despite some tension between Newman and Dirks, "it would ordinarily be neither appropriate nor possible for [a panel] to reverse an existing Circuit precedent." Shipping Corp. of India v. Jaldhi Overseas Pte Ltd., 585 F.3d 58, 67 (2d Cir. 2009). However, "a three-judge panel may issue an opinion that overrules Circuit precedent ... where an intervening Supreme Court decision casts doubt on the prior ruling." Doscher v. Sea Port Grp.
We respectfully conclude that Salman fundamentally altered the analysis underlying Newman's "meaningfully close personal relationship" requirement such that the "meaningfully close personal relationship" requirement is no longer good law. In a case involving a tipper and tippee who were brothers, Salman found it "obvious" that an insider would personally benefit from "trad[ing] on [inside] information ... himself and then giv[ing] the proceeds as a gift to his brother." 137 S.Ct. at 427-28. And Salman observed that an insider "effectively achieve[s] the same result by disclosing the information to [the tippee], and allowing him to trade on it," because "giving a gift of [inside] information is the same thing as trading by the tipper followed by a gift of the proceeds." Id. at 428; see also id. ("Making a gift of inside information to a relative ... is little different from trading on the information, obtaining the profits, and doling them out...."). For this reason, Salman cited Dirks's observation that "`insiders [are] forbidden' both `from personally using undisclosed corporate information to their advantage' and from `giv[ing] such information to an out-sider for the same improper purpose of exploiting the information for their personal gain.'" Id. (quoting Dirks, 463 U.S. at 659, 103 S.Ct. 3255) (alterations in original).
It is true that Dirks and Salman largely confine their discussion of gifts to "trading relative[s] and friend[s]," and, as indicated earlier, Salman did not specifically hold that gifts to anyone, not just relatives and friends, give rise to the personal benefit needed to establish insider trading liability (presumably because Salman involved tips between brothers, comfortably within the "trading relative" language of Dirks). However, the straightforward logic of the gift-giving analysis in Dirks, strongly reaffirmed in Salman, is that a corporate insider personally benefits whenever he "disclos[es] inside information as a gift ... with the expectation that [the recipient] would trade" on the basis of such information or otherwise exploit it for his pecuniary gain. Salman, 137 S.Ct. at 428. That is because such a disclosure is the functional equivalent of trading on the information himself and giving a cash gift to the recipient. Nothing in Salman's reaffirmation of this logic supports a distinction between gifts to people with whom a tipper shares a "meaningfully close personal relationship" — a term left undefined in Newman, but which apparently did not reach two people who "had known each other for years, having both attended business school and worked ... together," 773 F.3d at 452 — and gifts to those with whom a tipper does not share such a relationship. If the insider discloses inside information "with the expectation that [the recipient] would trade on it," Salman, 137 S.Ct. at 428, and the disclosure "resemble[s] trading by the insider followed by a gift of the profits to the recipient," id. at 427 (quoting Dirks, 463 U.S. at 664, 103 S.Ct. 3255), he
An example illustrates the point. Imagine that a corporate insider, instead of giving a cash end-of-year gift to his doorman, gives a tip of inside information with instructions to trade on the information and consider the proceeds of the trade to be his end-of-year gift. In this example, there may not be a "meaningfully close personal relationship" between the tipper and tippee, yet this clearly is an illustration of prohibited insider trading, as the insider has given a tip of valuable inside information in lieu of a cash gift and has thus personally benefitted from the disclosure.
Thus, we hold that an insider or tipper personally benefits from a disclosure of inside information whenever the information was disclosed "with the expectation that [the recipient] would trade on it," Salman, 137 S.Ct. at 428, and the disclosure "resemble[s] trading by the insider followed by a gift of the profits to the recipient," id. at 427 (quoting Dirks, 463 U.S. at 664, 103 S.Ct. 3255), whether or not there was a "meaningfully close personal relationship" between the tipper and tippee.
Contrary to the dissent's suggestion, not all disclosures of inside information will meet this test. For example, disclosures for whistleblowing purposes to reveal a fraud, see Dirks, 463 U.S. at 649-50, 667, 103 S.Ct. 3255, and inadvertent disclosures, see id. at 663 & n.23, 103 S.Ct. 3255, are not disclosures made "with the expectation that [the recipient] would trade on" them and thus involve no personal benefit to the insider. Salman, 137 S.Ct. at 428. There may also be other situations in which the facts do not justify the inference that information was disclosed "with the expectation that [the recipient] would trade on it," Salman, 137 S.Ct. at 428, and that the disclosure "resemble[s] trading by the insider followed by a gift of the profits to the recipient," id. at 427 (quoting Dirks, 463 U.S. at 664, 103 S.Ct. 3255). As a result, our holding does not eliminate or vitiate the personal benefit rule; it merely acknowledges that it is possible to personally benefit from a disclosure of inside information as a gift to someone with whom one does not share a "meaningfully close personal relationship." Phrased another way, we reject, in light of Salman, the categorical rule that an insider can never personally benefit from disclosing inside information as a gift without a "meaningfully close personal relationship."
It is, of course, the province of the jury to evaluate competing narratives and decide what actually motivated a tipper to disclose confidential information, and consequently, whether there was a personal benefit to the insider on the facts of a particular case. How can jurors, or this Court on appeal, know that inside information was disclosed "with the expectation that [the recipient] would trade on it," Salman, 137 S.Ct. at 428, and that the disclosure "resemble[d] trading by the insider followed by a gift of the profits to the recipient"? Id. at 427 (quoting Dirks, 463 U.S. at 664, 103 S.Ct. 3255). Arguably, Newman's "meaningfully close personal relationship" requirement could be construed as limited to the question of the sufficiency of circumstantial evidence in an insider trading case. See 773 F.3d at 451-53. But Newman's sufficiency analysis appeared to assume that the personal benefit involved in giving a gift was "the ephemeral benefit of the ... friendship" of the recipient of the gift. Newman, 773 F.3d at 452 (quoting Jiau, 734 F.3d at
The dissent argues that "[w]hat counts as a `gift' is vague and subjective."
As a final note on this point, the dissent is correct that the legality and ethics of insider trading are not necessarily coextensive. See Dissent Op. at 91. But the legality of insider trading is coextensive with a corporate insider's fiduciary duty of loyalty to the corporation. See Dirks, 463 U.S. at 654, 659-60, 103 S.Ct. 3255. The dissent would hold, in effect, that a corporate insider does not violate his or her duty of loyalty by disclosing inside information to an outsider as a gift with no legitimate corporate purpose so long as the gift is to someone with whom the insider does not share a "meaningfully close personal relationship." In our view, for the reasons discussed above, Salman and Dirks compel a different result.
Having concluded that the evidence was sufficient to support Martoma's conviction and that Newman's "meaningfully close personal relationship" requirement is no longer good law, the remaining question is whether the district court's jury instruction, which Martoma challenges for its failure to include Newman's "meaningfully close personal relationship" requirement, accurately conveyed the elements of insider trading. The jury instruction given at Martoma's trial stated that a "gift [given] with the goal of maintaining or developing a personal friendship or a useful networking contact" constitutes a personal benefit. Tr. 3191. Martoma focuses on the language about developing friendships, arguing that gifts given to develop future friendships do not give rise to the personal benefit needed to trigger insider trading liability. Salman reiterated that when confidential information is given as a gift, it is "the same thing as trading by the tipper followed by a gift of the proceeds" and is thus the functional equivalent of a cash gift. Salman, 137 S.Ct. at 428. Whether the recipient of the gift is an existing friend or a potential future friend whom a gift is intended to entice, the logic — that a tipper personally benefits by giving inside information in lieu of a cash gift — operates in a similar manner. For this reason, the aspect of the district court's instruction on gifts with the goal of developing friendships, which is at most "subject to reasonable dispute," did not constitute "obvious" error. Marcus, 560 U.S. at 262, 130 S.Ct. 2159 (internal quotation marks omitted).
Even if the jury instruction was obviously erroneous — which we hold it was not — that error did not impair Martoma's substantial rights in light of the compelling evidence that Dr. Gilman, the tipper, received substantial financial benefit in exchange for providing confidential information to Martoma. As discussed above, Dr. Gilman, over the course of approximately 18 months and 43 paid consultation sessions for which he billed $1,000 an hour, regularly and intentionally provided Martoma with confidential information from the bapineuzumab clinical trial. Martoma kept coming back, specifically scheduling consultation sessions so that they would occur shortly after the safety monitoring
We have considered Martoma's remaining arguments and find in them no basis for reversal. Accordingly, we
POOLER, Circuit Judge:
Because the majority rejects limitations the Supreme Court set forth in Dirks v. S.E.C., 463 U.S. 646, 103 S.Ct. 3255, 77 L.Ed.2d 911 (1983), and Salman v. United States, ___ U.S. ___, 137 S.Ct. 420, 196 L.Ed.2d 351 (2016), and overrules our holding in United States v. Newman, 773 F.3d 438 (2d Cir. 2014), without convening this Court en banc, I cannot join the opinion. And, because those precedents show that Martoma's jury instructions were erroneous in a way that affected his rights at trial, I respectfully dissent.
This appeal asks what the government must show to convict someone criminally of trading on inside information, or to prevail on similar civil charges. For years, the Supreme Court's decisions have required the government to show that the relevant information came from an insider who divulged it in return for a personal benefit.
In the past, we have held that an insider receives a personal benefit from bestowing a "gift" of information in only one narrow situation. That is when the insider gives information to family or friends — persons highly unlikely to use it for commercially legitimate reasons. Today's opinion goes far beyond that limitation, which was set by the Supreme Court in Dirks, 463 U.S. 646, 103 S.Ct. 3255, received elaboration in this Court's opinion in Newman, 773 F.3d 438, and was left undisturbed by the Supreme Court in Salman, 137 S.Ct. 420. In rejecting those precedents, the majority opinion significantly diminishes the limiting power of the personal benefit rule, and radically alters insider-trading law for the worse.
To prevail in an insider-trading case based on a tip from an insider to a trader, the government must prove several elements. See, e.g., United States v. Jiau, 734 F.3d 147, 153 (2d Cir. 2013). Among them, the government must show that the insider had a fiduciary duty to protect the confidential information and nonetheless disclosed it in return for a personal benefit. Dirks, 463 U.S. at 659-64, 103 S.Ct. 3255.
The requirement of a personal benefit exists because not "[a]ll disclosures of confidential corporate information are ... inconsistent with the duty insiders owe to shareholders." Id. at 661, 103 S.Ct. 3255. The law targets only someone who "takes advantage" of inside information to make "secret profits." Id. at 654, 103 S.Ct. 3255. For example, the insider who reveals information inadvertently — perhaps letting it slip accidentally during a legitimate business conversation — has not committed insider trading. See S.E.C. v. Obus, 693 F.3d 276, 287 (2d Cir. 2012) (noting liability likely would not lie for an inadvertent disclosure); see also Dirks, 463 U.S. at 662, 103 S.Ct. 3255. Similarly, insiders speaking for public-spirited reasons, such as "a desire to expose ... fraud," do not commit insider trading. Dirks, 463 U.S. at 667, 103 S.Ct. 3255. To ensure that these cases, and similar ones, do not result in criminal or civil liability, the law requires the government to show that an insider benefitted personally in return for a tip.
In introducing the personal benefit rule in Dirks, the Supreme Court explained that it was "essential ... to have a guiding principle for those whose daily activities must be limited and instructed by the
The Supreme Court also noted that the question of whether an insider personally benefitted from disclosure would "require[] courts to focus on objective criteria." Id. at 663, 103 S.Ct. 3255. Rather than courts attempting to "read the parties' minds," id., they would look to "objective facts and circumstances that [would] justify ... an inference" that an insider received a personal benefit, id. at 664, 103 S.Ct. 3255.
Without the personal benefit rule, many insider-trading cases would require the government to show few objective facts. Consider, for example, a situation where an insider conveys material, nonpublic information to a reporter, and the reporter tells it to a third person who trades on it.
These requirements at first appear weighty. Except for the "personal benefits," however, the requirements relate only to each individual's state of mind. In a civil suit, to prove these state-of-mind requirements, the government need not show that the insider knew the reporter would benefit, or that the reporter knew of the insider's duty and breach or the third person's intention to trade. It is enough to show that the insider and the reporter should have known.
In a criminal case, at least in this Circuit, it is not enough for the government to show mere recklessness to fulfill the state-of-mind requirements.
The personal benefit requirement limits liability in situations like the one described in the hypothetical above. It requires the government to show that the insider received a benefit for disclosing the information, that the reporter received a benefit for sharing it, and that the reporter had reason to know of both. Assuming that the personal benefit must be demonstrated by
The development of the personal benefit rule from Dirks, to this Court's opinion in Newman, and then to the Supreme Court's opinion in Salman, is crucial to understanding why the majority's rule in the opinion today goes far beyond the law's previous understanding of what constitutes a personal benefit.
In Dirks, the Supreme Court first provided a list of items satisfying the requirement that an insider receive a personal benefit from revealing inside information:
Dirks, 463 U.S. at 663-64, 103 S.Ct. 3255 (internal citations omitted). Two of the possible personal benefits, "a pecuniary gain" and "a reputational benefit that will translate into future earnings," correspond closely with the ordinary understanding of a "benefit." The third, "a gift of confidential information," perhaps corresponds less closely. It is not entirely straightforward why giving a gift provides the gift-giver with a benefit. But the Court restricted the applicability of that theory to cases where the gift is given to the tipper's "trading relative or friend." Such a limitation makes the theory defensible, because, as Justice Breyer noted at oral argument in Salman, "to help a close family member [or friend] is like helping yourself." Transcript of Oral Argument at 8, Salman v. United States, 137 S.Ct. 420 (2016) (No. 15-628).
Our opinion in Newman built on the gift-giving theory in Dirks in two ways.
Newman, 773 F.3d at 452 (emphasis added) (internal citations, quotation marks, and brackets omitted). The opinion in Newman expressed concern that, without such a limitation, the government would present superficial "friendships" not worthy of the name:
Id. Newman thus expressed concern that inferring a benefit from a gift within a "casual or social" relationship failed to honor the requirement that "the personal benefit received in exchange for confidential information ... be of some consequence." Id. Like Dirks, Newman's first holding was clearly animated by the idea that the personal benefit requirement could not become "a nullity" given its role as a limiting principle of liability. Id. It attempted to specify what Dirks had left unclear — how close persons must be for a gift between them to count as a benefit to the gift-giver.
Second, Newman held that an insider's gift to a friend only amounted to a personal benefit if the gift might yield money (or something similar) for the insider. 773 F.3d at 452. Although Dirks said that "[t]he elements of fiduciary duty and exploitation of nonpublic information ... exist when an insider makes a gift of confidential information to a trading relative or friend," 463 U.S. at 663-64, 103 S.Ct. 3255, Newman interpreted Dirks to require not merely a gift to a friend, but also that it be given in the context of a relationship that "generates an exchange that is objective, consequential, and represents at least a potential gain of a pecuniary or similarly valuable nature." Newman, 773 F.3d at 452.
After Newman, the Supreme Court decided Salman v. United States. Salman involved three persons — Maher and Michael, who were brothers, and Salman, the defendant, who was Maher's brother-in-law and Michael's "friend" and "extended family member." 137 S.Ct. at 423-24. Maher, who had inside information, would disclose it to his brother Michael, who then passed it to Salman. Id. Salman traded on it. Id. at 424.
The defendant, Salman, "argue[d] that he [could not] be held liable as a tippee because" Maher "did not personally ... benefit from" giving tips. Id. at 424. The case, in other words, turned on whether "Maher, the tipper," received a personal
The Supreme Court affirmed the Court of Appeals for the Ninth Circuit, which had rejected Salman's argument. Id. The Supreme Court explained that "the Court of Appeals properly applied Dirks" in ruling that "Dirks allowed the jury to infer that the tipper here breached a duty because he made a gift of confidential information to a trading relative." Id. (internal quotation marks omitted). The Supreme Court held that a tipper did not need to receive money or property to benefit personally when disclosing to a friend or relative. Id. at 428.
The Supreme Court's opinion in Salman overturned Newman's second holding, which required a showing that a tipper would receive something of "pecuniary or similarly valuable nature" even when making a gift to relatives or friends. Regarding Newman's second holding, the Supreme Court wrote the following:
Salman, 137 S.Ct. at 428 (internal citation omitted). The Supreme Court stated that, "when a tipper gives inside information to a trading relative or friend, the jury can infer that the tipper meant to provide the equivalent of a cash gift." Id. (internal quotation marks omitted). Thus, after Salman, a gift of information to a "trading relative or friend" is sufficient, without an accompanying monetary or other gain, for a fact-finder to conclude that a tipper received a personal benefit.
The Supreme Court, however, left Newman's first holding untouched. The Supreme Court quoted the first holding of Newman, that the inference of a personal benefit from a gift "is impermissible in the absence of proof of a meaningfully close personal relationship." Salman, 137 S.Ct. at 425 (quoting Newman, 773 F.3d at 452). But the Supreme Court explicitly stated that it overruled Newman only "[t]o the extent" that it required an insider to "receive something of a `pecuniary or similarly valuable nature'" as a result of giving a gift to a friend. Salman, 137 S.Ct. at 428 (emphasis added). The Supreme Court's statement showed no disapproval of the "meaningfully close personal relationship" language in Newman.
Had the Supreme Court discussed the "meaningfully close personal relationship" requirement of Newman — which it did not — that discussion would have been dicta. Salman considered whether a gift shared between brothers could show a personal benefit. See 137 S.Ct. at 424. An opinion considering a relationship between brothers does not need to rule on, or even address, how close two persons' friendship must be for them really to be "friends."
To the extent Salman discussed the relationship between Maher and Michael, it took pains to emphasize, repeatedly, that they were extremely close:
Id. at 424, 427 (citations omitted). The fact that Michael and Maher were not only brothers, but otherwise were "very close," "enjoyed a close relationship," "loved" each other "very much," that Michael served as "best man at Maher's wedding," and that the two were "close relatives" demonstrates that any discussion in Salman of the requirements for the closeness of a friendship was unnecessary to resolve the appeal. The Supreme Court did not need to decide how close a relationship must be for two persons to be "friends" or "meaningfully close," because the relationship between Michael and Maher would have satisfied any conceivable test.
Beyond leaving Newman's first holding untouched, the Supreme Court's decision in Salman also declined to adopt the government's theory of the personal benefit rule, which would have broadened the gift-giving doctrine substantially. In Salman, the government argued that "a gift of confidential information to anyone, not just a `trading relative or friend,' is enough to prove securities fraud." Id. at 426. Such a holding would have substantially broadened the rule in Dirks, which stated that a personal benefit may be inferred when "an insider makes a gift of confidential information to a trading relative or friend." 463 U.S. at 664, 103 S.Ct. 3255. The Supreme Court did not adopt the government's view, deciding instead to "adhere to Dirks." Salman, 137 S.Ct. at 427.
To summarize, Dirks held that a gift of information to an insider's relatives or friends could permit an inference of a personal benefit. In Newman, we held that such an inference could only be made when (1) the gift was exchanged within a "meaningfully close personal relationship," and (2) a gift created the potential for an insider to receive a pecuniary or similar benefit. Salman reversed the second holding of Newman, requiring the potential of pecuniary gain, but left untouched the first holding that, in order to allow inference of a personal benefit, gifts must be exchanged within a "meaningfully close personal relationship."
The majority today articulates a rule that permits inference of a personal benefit whenever an insider makes a "gift" of information to anyone, not just to relatives or meaningfully close friends. As the majority puts it, "a corporate insider personally benefits whenever he discloses inside information as a gift with the expectation that the recipient would trade on the basis of such information or otherwise exploit it for his pecuniary gain." Op. at 69 (internal quotation marks, brackets, and ellipsis omitted). Or, put another way, "[i]f the
The majority declines to provide further guidance on what counts as a "gift." Op. at 72 ("[W]e need not consider the outer boundaries of when a jury is entitled to infer ... that a particular disclosure ... resembled trading by the insider followed by a gift of the profits to the recipient." (internal quotation marks and brackets omitted)). Any disclosure of material, non-public information clearly resembles a gift, in that it provides the recipient with something of value. The rule limiting the gift theory to relatives and friends made it largely unnecessary to ask what distinguished a "gift" from a non-gift disclosure, in that most insiders have few reasons beyond gift-giving to share valuable business secrets with close friends or family members. But in other cases, simply telling a jury to distinguish between a disclosure that is a gift, as opposed to one that is not, with no further guidance, invites decision-making that is entirely arbitrary and subjective. It puts the analysis largely on the intentions of the parties, which is likely to be unclear and proven through circumstantial evidence. In short, it undermines the objectivity and limitation that the personal benefit rule is designed to provide. See Dirks, 463 U.S. at 662-64, 103 S.Ct. 3255.
The majority emphasizes that the vastly-expanded "gift" rule "reaches only the insider [or other tipper] who discloses information to someone he expects will trade on the information." Op. at 71 (emphasis in original). This rule is a separate requirement for insider-trading liability in tipping cases, see Obus, 693 F.3d at 286-87; United States v. Gansman, 657 F.3d 85, 92 (2d Cir. 2011),
The majority's rule is inconsistent with Newman's "meaningfully close personal relationship" requirement, which the majority explicitly overrules. The majority claims that Salman "cast[] doubt" on the rule. Op. at 68. The majority takes this view even though Salman explicitly abrogated Newman only in a single, narrower respect; even though Salman had no occasion to discuss friendships since the case was about brothers; and even though Salman emphatically declared the Supreme Court's intention to adhere to Dirks, which was the basis of Newman. The source of the majority's doubt is mysterious.
The majority also makes a bolder claim: that the limitation described in Dirks — that a personal benefit may only be inferred from a gift when the gift is between friends or relatives — is no longer good law. Op. at 81-82 (noting that "[i]f the insider discloses inside information ... and the disclosure resembles trading by the insider followed by a gift of the profits to the recipient, he personally benefits," and suggesting that the rule is "not limited by the relationships of the parties," and that the rule may apply even without "a personal relationship of any kind, let alone a friendship" between tipper and tippee (internal quotation marks and brackets omitted)). The majority reaches this conclusion even though, as noted, Salman spoke only of gifts raising the inference of a personal benefit when "a tipper gives inside information to a trading relative or friend," 137 S.Ct. at 428 (emphasis added), and even though Salman specifically noted the government's view that all gifts (no matter to whom) count as benefits, but did not adopt that view.
The majority seizes on several features of Salman to contend that the decision called into question the "meaningfully close personal relationship" requirement of Newman and the "friends and relatives" limitation of Dirks. First, the majority quotes Salman as saying that "`insiders [are] forbidden' both `from personally using undisclosed corporate information to their advantage' and from `giv[ing] such information to an outsider for the same improper purpose of exploiting the information for their personal gain,'" and suggests
137 S.Ct. at 428 (emphasis added) (brackets in original). The majority quotes the Supreme Court's parenthetical, leaving unstated its previous sentences applying the theory to a family member, and its next sentence summarizing Dirks as permitting an inference of benefit when the insider gives a gift to "a trading relative or friend." Given this language, the Supreme Court cannot have meant, by writing the above-quoted passage, to rule on whether gifts permit the inference of a benefit when they are given to persons other than trading relatives or friends.
Although the Supreme Court repeatedly stated in Dirks and Salman that a personal benefit may be inferred from an insider's "gift ... to a trading relative or friend," the majority believes those statements were not meant "to limit" the "gift" theory to gifts between relatives or friends. Op. at 68. But the majority does not explain why, if the Supreme Court meant that any gift could create the inference of a benefit, it would have repeatedly referred only to gifts among friends and relatives. Such an intention would be particularly puzzling given the sheer number of times in Salman the Supreme Court listed this qualification, including the following:
137 S.Ct. at 423, 427, 428 (emphasis added). In the majority's view, the Supreme Court's references to "a trading relative or friend," stated in Dirks and repeated nearly a half-dozen times in Salman, are just superfluous.
The majority also emphasizes the following passage in Salman:
137 S.Ct. at 427 (citations and brackets omitted; emphasis in original). Omitting the Supreme Court's italicized statement that the rule applies to gifts between relatives and friends, the majority focuses only on the latter sentence: "In such cases, the tip and trade resemble trading by the insider followed by a gift of the profits to the recipient." Salman, 137 S.Ct. at 427; see Op. at 69, see also id. at 69-70. The majority states that this sentence means that "the personal benefit one receives from giving a gift of inside information is not the friendship or loyalty or gratitude of the recipient of the gift; it is the imputed pecuniary benefit of having effectively profited from the trade oneself and given the proceeds as a cash gift." Op. at 72(emphasis in original). Accordingly, the majority believes a benefit may be imputed to a gift-giver even when the recipient is not a friend or relative. The only question should be whether "the tip and trade resemble trading by the insider followed by a gift of the profits to the recipient." Op. at 69 (brackets omitted); see also id. at 69-70.
There are several problems with this line of argument. First, the majority does not consider that there may be two limitations on whether a particular disclosure confers a "personal benefit," and that each limitation need not spring from the same reasoning. It is perfectly reasonable to say that gifts can, in principle, confer a personal benefit to the giver, but that most gifts actually confer little or no such benefit. And a main area in which it is reasonable to see gifts as creating a benefit for the gift-giver is when the gifts go to family or close friends.
Gifts to family or friends are more likely to confer a benefit upon the gift-giver because, as noted above, "to help a close family member [or friend] is like helping yourself." Transcript of Oral Argument at 8, Salman v. United States, 137 S.Ct. 420 (2016) (No. 15-628). This is true for several reasons. First, a person often benefits directly when making significant gifts to friends and relatives. A family member who receives a new car or apartment (or even a book) might share it with the gift-giver; similarly, providing a stock tip to a relative may obviate the need to give the type of loan sometimes expected of close
Moreover, permitting a personal benefit to be inferred only from those gifts between relatives and friends avoids much of the potential for liability based on innocent conduct that might flow from a broader "gift" rule. As noted above, insiders typically have no legitimate commercial reason to share business secrets with friends and family. An inference that information passed by the insider to a friend or relative was intended as a gift, rather than for business reasons, is thus far more defensible than a similar inference based on a gift between strangers or colleagues.
In demanding that the "gift" rule be justified by a single line of reasoning, the majority ignores the fact that logically independent limitations often cabin legal rules that would otherwise be unworkable because they extend too far. For example, in tort law, the doctrine that persons are liable for harms brought about by their actions is limited by what consequences they might reasonably have foreseen, and other rules of proximate causation. Palsgraf v. Long Island R. R. Co., 248 N.Y. 339, 162 N.E. 99 (1928). In contract law, the principle that the parties' agreement at the time of the contract sets their duties is limited by a freestanding rule of impracticability. See Restatement (Second) of Contracts § 261 (Am. Law Inst. 1981). In the law of insider trading, the Supreme Court appears to have made a similar rule. It stated the principle that gifts may confer a benefit to the gift-giver because of their similarity to trading and gifting the profits, but limited that rule's reach to situations where the recipient is a relative or friend. And the limitation to friends and relatives prevents the gift rule from extending much too far: if interpreted broadly, the term "gift" could cover nearly any disclosure, and thus eliminate the personal benefit rule entirely.
Finally, even if tension exists between the principles that (1) a gift of information may provide an insider a benefit, and (2) that such a benefit may be inferred only from gifts to family and friends, such tension has existed since Dirks, where both of these statements appear. Dirks, 463 U.S. at 664, 103 S.Ct. 3255. Our opinion in Newman chose between the two (arguably) competing rationales, and emphatically stated that we would infer a benefit only where gifts are exchanged within meaningfully close personal relationships. 773 F.3d at 452. Nothing in Salman breaks new ground on the point. Thus, there is nothing new that suggests we should reverse Newman's decision without a hearing en banc.
I note, also, that the majority's opinion exactly mirrors the government's view pressed in Salman: that "a gift of confidential
Accordingly, I would hold (1) that Salman does not overrule Newman's "meaningfully close personal relationship" requirement, and (2) that Salman does not overrule the limitation described in both Dirks and in Salman itself — that an inference of personal benefit may be based on an insider's gift to relatives or friends, but not a gift to someone else.
Having determined that Newman is still applicable, I next consider, under the standard articulated in Newman, whether Martoma's jury instruction was plainly erroneous, and, if so, whether the error was harmless. We review for plain error because Martoma did not object to the jury instruction on grounds related to the rule in Newman. See Fed. R. Crim. P. 52 ("A plain error that affects substantial rights may be considered even though it was not brought to the court's attention."). His slip-up was, of course, eminently understandable, given that the rule in Newman did not yet exist at the time of Martoma's trial.
The plain-error standard requires "that (1) there is an error; (2) the error is clear or obvious, rather than subject to reasonable dispute; (3) the error affected [Martoma's] substantial rights ... and (4) the error seriously affects the fairness, integrity[,] or public reputation of judicial proceedings." United States v. Prado, 815 F.3d 93, 100 (2d Cir. 2016).
I would apply our "modified plain error" rule in these circumstances. See United States v. Viola, 35 F.3d 37, 41-43 (2d Cir. 1994). In the past, we have held that "[w]here ... the source of an alleged jury instruction error is a supervening decision, we employ a `modified plain-error rule, under which the government, not the defendant, bears the burden to demonstrate that the error was harmless.'" United States v. Mahaffy, 693 F.3d 113, 136 (2d Cir. 2012) (quoting United States v. Bahel, 662 F.3d 610, 634 (2d Cir. 2011)).
A number of panels of this Court have suggested, without deciding, that our "modified plain error rule" may not have "survived the Supreme Court's decision in Johnson v. United States, 520 U.S. 461, 117 S.Ct. 1544, 137 L.Ed.2d 718 (1997)." Bahel, 662 F.3d at 634; see also United States v. Boyland, 862 F.3d 279, 289 (2d Cir.2017) ("[W]e have acknowledged doubt as to the continued viability of the modified plain error test but have not had the need to address it."); United States v. Botti, 711 F.3d 299, 308-09 (2d Cir. 2013) (discussing whether Johnson overruled the modified plain error test).
We should adhere to the modified plain error rule when considering a supervening legal change for two reasons. First, we are bound by post-Johnson precedents of our Court that apply the rule. The panel in Mahaffy recited the modified plain error rule in 2012 — over a decade after Johnson — and stated that the rule applied when "the source of an alleged jury instruction error is a supervening decision." 693 F.3d at 135-36. The panel then relied on the rule in vacating a conviction. Id. The panel in United States v. Monteleone also relied on the rule, and that case, too, was decided
Second, neither Johnson nor its reasoning challenges our modified plain error rule. In Johnson, the Supreme Court considered an appeal of a perjury conviction. Johnson, 520 U.S. at 463, 117 S.Ct. 1544. During Johnson's trial, the district court ruled that the element of materiality, which was required to sustain a conviction under the perjury statute, was a question for the judge and not the jury. Id. at 464, 117 S.Ct. 1544. That decision was "in accordance with then-extant Circuit precedent." Id. But after Johnson's conviction, the Supreme Court ruled in United States v. Gaudin, 515 U.S. 506, 115 S.Ct. 2310, 132 L.Ed.2d 444 (1995), that materiality in perjury prosecutions was a question for the jury, not the judge. Johnson, 520 U.S. at 464, 117 S.Ct. 1544.
Johnson did not object at trial to the district judge's ruling that materiality was a question for the judge. She argued on appeal, however, that she should be excused from showing that the district court's decision was plainly erroneous instead of merely erroneous, because the error was "`structural,' and so ... outside [Federal Rule of Criminal Procedure] 52(b) altogether." Id. at 466, 117 S.Ct. 1544. The Supreme Court rejected this argument, explaining that "the seriousness of the error claimed does not remove consideration of it from the ambit of the Federal Rules of Criminal Procedure." Id. The Supreme Court noted that Rule 52(b), which sets out the standard for plain error, "by its terms governs direct appeals from judgments of conviction in the federal system, and therefore governs this case." Id. The Supreme Court also "cautioned against any unwarranted expansion of Rule 52(b)," discouraging especially "the creation out of whole cloth of an exception to [Rule 52(b)], an exception which we have no authority to make." Id.
Even with its strong language, Johnson does not affect our modified plain error rule. Johnson rejected an attempt to ignore the language of Rule 52(b), which reads as follows:
Fed. R. Crim. P. 52. The defendant in Johnson asked the Supreme Court to go beyond the language of Rule 52(b) by holding that she was not required to show "plain" error, as the rule requires, to gain review of a right "not brought to the court's attention." But the modified plain error rule in our Circuit does not lessen the degree of error a defendant must show to gain review. Instead, the modified plain error rule allocates the burden for considering whether a plain error "affects substantial rights." Rule 52(b) says nothing about that burden. Nor did Johnson: the Supreme Court explicitly declined to decide whether the error affected the defendant's substantial rights, given that the government would have prevailed for other reasons. 520 U.S. at 469, 117 S.Ct. 1544.
Consequently, I would apply the modified plain error rule in this context.
The jury instructions given at Martoma's trial permitted conviction if the jury
Newman held that a personal benefit cannot be inferred from gift-giving "in the absence of proof of a meaningfully close personal relationship." 773 F.3d at 452. Salman did not abrogate that rule. And whatever counts as a "meaningfully close" relationship, a non-existent friendship clearly is not one. The instruction is thus plainly erroneous under Newman.
The government bears the burden to show that the error was harmless, and "[a]n error is harmless in this context if it is clear beyond a reasonable doubt that a rational jury would have found the defendant guilty absent the error." Mahaffy, 693 F.3d at 136 (internal quotation marks omitted).
The government argues that the error was harmless because evidence at trial demonstrated a personal benefit to Gilman, the source of the information, in two ways. The government argues, first, that the information was a gift within a friendship between Gilman and Martoma, and second, that Gilman received a pecuniary benefit in return for passing Martoma the information.
Although a jury was entitled to find at Martoma's trial that either the government's pecuniary or friendship argument satisfied this test, the government has not carried its "burden to demonstrate that the error was harmless." Mahaffy, 693 F.3d at 136.
First, it is not clear that Martoma and Gilman had the kind of meaningfully close personal relationship required by Newman. A jury could have seen their relationship that way. Gilman said that it "was touching" that Martoma had spent time trying to find him on one occasion, Tr. at 1240, and testified that Martoma "wanted to be friends" and "seemed to want to be closer than I thought a client should be to a consultant," Tr. at 1236. Gilman also stated that he thought he and Martoma "were friends" eventually. Tr. at 1488. But jurors could also see an ordinary, if pleasant, transactional relationship between a hedge fund trader and a medical expert. For example, the government asked at trial whether Gilman "enjoy[ed] consulting
Moreover, at various stages in this case, the government has expressly denied that Martoma and Gilman had any kind of meaningfully close personal relationship. At the first oral argument in this case, the government stated the following:
Recording of Oral Argument at 26:27-26:58, United States v. Martoma, No. 14-3599 (2d Cir. October 28, 2015) (emphasis added). The government also described the relationship as "clearly a commercial, pecuniary relationship," given that Gilman was a "doctor[] who never spoke to Martoma before he started paying ... and never spoke again once he stopped." Recording of Oral Argument at 34:18-34:27, United States v. Martoma, No. 14-3599 (2d Cir. October 28, 2015). In light of the government's own view of the issue, it would seem incorrect to hold that a reasonable jury could not have thought the same: that Martoma and Gilman did not share a meaningfully close personal relationship.
Although it is a much closer question, I would also hold that the government has failed to show that a rational jury must find that Gilman received a pecuniary benefit for disclosing the inside information on which Martoma traded. I do not disagree with the majority that, in the context of a "relationship of quid pro quo," Newman, 773 F.3d at 452, a jury may infer that an insider received a personal benefit from revealing information. But the jury is not required to find as much, and it is not clear that, in this case, a reasonable fact-finder could not have thought otherwise.
At trial, Gilman testified that he did not bill for the sessions in July of 2008 during which he gave Martoma the information leading to Martoma's trades. Tr. at 1918. Whether Gilman was paid for his disclosures in July of 2008 thus relates to whether one believes either that SAC paid Gilman earlier in anticipation of the release of the July 2008 information or that Gilman released the information in order that he might be paid by SAC in the future.
The government cites no clear evidence that SAC paid Gilman either before or after July 2008 in return for revealing the information in question, rather than simply paying Gilman for his other consultations with Martoma. And the evidence at trial offered serious reason to doubt that Gilman took illegal actions because he wanted, as a general matter, to keep payments flowing from SAC. Testimony showed that Gilman was in high demand as an expert. From 2006 to 2010, Gilman earned at least $300,000 per year in consulting fees. Tr. at 1555-56, 1560. This income resulted from services Gilman provided to more than a dozen pharmaceutical and financial companies. Tr. at 1552-54. Gilman testified that, combining his consulting with his position as a professor at the University of Michigan, he "work[ed] about 80 hours a week on average." Tr. at 1560. Gilman also testified
The government also conceded at oral argument in this appeal that no one ever asked Gilman a direct question as to whether he told Martoma inside information in exchange for a monetary benefit. In the absence of such testimony, and particularly in light of Gilman's abundant consulting opportunities, a reasonable jury need not have concluded that Gilman released the information in anticipation of payment. Instead, a jury could have believed SAC's payments were for information Gilman told Martoma during other sessions — information that was either public, non-material, or did not prompt a trade, and thus was not a violation of insider-trading laws. See, e.g., Tr. at 1231 (noting that Gilman began speaking with Martoma in January 2006); 1242 (Gilman's testimony that he did not reveal confidential information until "the fall to winter of 2006-7"). I would not rule, particularly absent direct testimony on the point, that whenever inside information is revealed within a paid consulting relationship where other, legitimate service is rendered, a fact-finder must infer that the insider was paid to breach his duties.
I note, in closing, that securities law is a field in which legal and ethical obligations are not coterminous. Leading scholars emphasize that insider-trading rules are under-inclusive in reaching conduct that disserves the public. See, e.g., Jesse M. Fried, Insider Trading via the Corporation, 162 U. Pa. L. Rev. 801, 808-10, 813-14, 816-20, 826-34 (2014) (emphasizing that the law does not bar trades based on non-material information, and describing potential and actual harm to the public because of individual and corporate trades based on inside information). This is not surprising, as the Supreme Court has noted, given that securities regulation is built on statutes and that its principles apply broadly to many transactions in the marketplace:
Dirks, 463 U.S. at 661 n.21, 103 S.Ct. 3255 (internal quotation marks and citation omitted). Adhering to the Supreme Court's precedent may challenge us when it leaves unethical conduct unpunished. But there is great wisdom in the Supreme Court's limitations on broad rules, particularly when those rules might otherwise allow punishment of the absentminded in addition to
For the reasons stated, I respectfully dissent.
The government suggests that the information from Ross "caused more illegal trades... when Ross's information confirmed what Gilman had already supplied." Appellee's Br. at 21. But the government provides no explanation of why a jury could not have believed that Martoma traded because of what Gilman had already told him instead of what he learned from Ross.
