Filed: Nov. 05, 2018
Latest Update: Mar. 03, 2020
Summary: 17-593 United States v. Stewart UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT _ August Term, 2017 (Argued: February 26, 2018 Decided: November 5, 2018) Docket No. 17-593 _ UNITED STATES OF AMERICA, Appellee, -- v. -- SEAN STEWART, Defendant-Appellant, RICHARD CUNNIFFE, ROBERT STEWART, aka Bob, Defendants. _ B e f o r e: KATZMANN, Chief Judge, LEVAL, Circuit Judge, and BERMAN, District Judge. * Judge Richard M. Berman, United States District Court for the Southern District of * New York,
Summary: 17-593 United States v. Stewart UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT _ August Term, 2017 (Argued: February 26, 2018 Decided: November 5, 2018) Docket No. 17-593 _ UNITED STATES OF AMERICA, Appellee, -- v. -- SEAN STEWART, Defendant-Appellant, RICHARD CUNNIFFE, ROBERT STEWART, aka Bob, Defendants. _ B e f o r e: KATZMANN, Chief Judge, LEVAL, Circuit Judge, and BERMAN, District Judge. * Judge Richard M. Berman, United States District Court for the Southern District of * New York, s..
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17‐593
United States v. Stewart
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
_______________
August Term, 2017
(Argued: February 26, 2018 Decided: November 5, 2018)
Docket No. 17‐593
_______________
UNITED STATES OF AMERICA,
Appellee,
‐‐ v. ‐‐
SEAN STEWART,
Defendant‐Appellant,
RICHARD CUNNIFFE, ROBERT STEWART, aka Bob,
Defendants.
_______________
B e f o r e:
KATZMANN, Chief Judge, LEVAL, Circuit Judge, and BERMAN, District Judge. *
Judge Richard M. Berman, United States District Court for the Southern District of
*
New York, sitting by designation.
_______________
Defendant‐appellant Sean Stewart appeals from a judgment of conviction
entered on February 24, 2017, in the United States District Court for the Southern
District of New York (Swain, J.). In connection with an insider trading scheme,
the defendant‐appellant was found guilty after a jury trial of conspiracy to
commit securities fraud and tender offer fraud, in violation of 18 U.S.C. § 371;
conspiracy to commit wire fraud, in violation of 18 U.S.C. § 1349; six counts of
securities fraud, in violation of 15 U.S.C. §§ 78j(b) and 78f; and tender offer fraud,
in violation of 15 U.S.C. §§ 78n(e) and 78ff. On appeal, the defendant‐appellant
argues that he was deprived of an opportunity to examine a key witness in light
of that witness’s improper invocation of the Fifth Amendment privilege against
self‐incrimination; that his due process rights were violated by the district court’s
decision not to immunize that witness in order to allow the witness to testify
without fear of self‐incrimination; and that several evidentiary errors were made.
Although we disagree with the defendant’s constitutional arguments, we
nevertheless find that certain impeachment material that might have influenced
the jury’s deliberations should not have been excluded. Accordingly, the
judgment of the district court is VACATED and REMANDED.
Judge Berman dissents in a separate opinion.
_______________
BROOKE E. CUCINELLA (Sarah K. Eddy, Brian Blais, and Margaret
Garnett, on the brief), Assistant United States Attorneys, for
Geoffrey S. Berman, United States Attorney for the Southern
District of New York, New York, NY.
ALEXANDRA A.E. SHAPIRO, (Sean Nuttall, on the brief), Shapiro Arato
LLP, New York, NY, for Sean Stewart.
2
PER CURIAM:
This is an unusual insider trading case, in that defendant‐appellant Sean
Stewart does not contest that he provided material, nonpublic information to his
father, Robert Stewart. Rather, Sean readily acknowledges that “he was very
close to his father, routinely confided in him, and even occasionally mentioned
potential deals,” and that his father and others then invested based upon that
information. Def. Br. 1. The key question facing the jury was whether to believe
Sean when he denied that he knew that his father would trade on the
information that Sean had provided. Evidently they did not, as Sean was
convicted on all counts brought against him.
The government’s case largely hinged on the so‐called “silver platter
statement,” in which Sean purportedly told Robert that he expected Robert to
invest based upon information to which Sean had access through his work as an
investment banker. In this matter, a silver platter proved to be the government’s
silver bullet. Because we agree that Sean should not have been precluded from
3
impeaching the silver platter statement, however, we VACATE the conviction
and REMAND this matter to the district court for further proceedings.1
BACKGROUND
Sean Stewart testified that he was “very close” to his parents growing up
and that he had an “excellent” relationship with his father, Robert Stewart, in
particular. Tr. 1129‐30. Into adulthood, Sean would regularly speak with his
parents several times per week by phone and would see them in person once or
twice per month. Among the topics that they often discussed were Sean’s career
and what he was working on. Although Sean knew that company policy forbade
him from discussing confidential information with anyone other than his
colleagues, he did not abide by that rule. Rather, he admitted that he “spoke very
freely” with his family, explaining that he “grew up in a household where there
were no secrets, and [his family] shared everything about [their] lives.” Id. at
1189.
1 In light of this disposition, the defendant’s procedural reasonableness challenge to his
sentence is now moot.
4
Sean began working as an analyst at JP Morgan Chase in 2003. Among the
matters that Sean worked on while at JP Morgan was the sale of a
pharmaceutical research company, Kendle International, Inc. Robert began
purchasing Kendle common stock on February 7, 2011, shortly after Sean had
attended a kick‐off meeting for the Kendle project. In addition, Robert asked a
colleague, Mark Boccia, to make further investments in Kendle on Robert’s
behalf. Boccia began doing so in mid‐February, with some of the investments
made on his own behalf and some on behalf of Robert. Kendle’s acquisition was
publicly announced on May 4, 2011. The following day, Robert sold his Kendle
securities, and, acting on Robert’s advice, Boccia did the same. Boccia then paid
Robert a share of his trading profits in cash.
At around the same time, JP Morgan was also involved in the sale of
Kinetic Concepts, Inc., a medical device company known as “KCI.” Although
Sean did not work on the KCI transaction directly, he was involved with
ensuring that it was properly staffed. Boccia began purchasing KCI call options
on behalf of both himself and Robert on April 5, 2011, with Robert this time
telling Boccia that Sean “knew that [KCI was] going to merge.” Id. at 371. Robert
5
also asked another colleague, Richard Cunniffe, to purchase KCI call options on
his behalf, explaining that he could not do so directly because “he was too close
to the source.” Id. at 623. Cunniffe began purchasing KCI call options on April 21,
2011. In addition, Robert began personally purchasing KCI common stock on
May 5, 2011, the same day on which he had sold his Kendle shares. The KCI
transaction was publicly announced on July 13, 2011, generating significant
profits for Cunniffe and Robert, though Boccia’s options had already expired by
that time.
Meanwhile, on May 25, 2011, Sean was made aware that the Financial
Industry Regulatory Authority (“FINRA”) was investigating suspicious trading
in Kendle securities. In connection with that investigation, Sean was asked
whether he knew any of the individuals whose names appeared on a list
circulated by FINRA. Although Robert appeared on the list, Sean initially denied
recognizing any of the listed names. JP Morgan requested that Sean review the
list again after FINRA inquired further, at which time Sean acknowledged that
the list included his father’s name. JP Morgan’s legal and compliance staff
subsequently arranged to meet with Sean on August 26, 2011.
6
The night before that meeting, Sean and Robert met at the Yale Club.
According to Sean, he told Robert about the upcoming meeting and said that
Robert’s name had appeared on FINRA’s list. Sean testified that he confronted
his father about the Kendle trades because he was “confused, ashamed, [and]
taken aback,” and he “wanted to know why [Robert] would do something so
foolish, so stupid,” as Sean knew Robert might have learned of the Kendle
transaction from their conversations. Id. at 1235. Sean described Robert as
“embarrassed” and “nervous” upon being asked about Kendle, claiming to have
invested based upon public information, though Sean did not believe him. Id.
The following day, Sean told JP Morgan compliance and legal personnel
that he had not discussed Kendle with his father. Sean has admitted that he
“lied,” explaining that he “was nervous about [Robert] getting in trouble” and
recognized that his father’s investments “would be potentially damaging for
[his] prospects” professionally. Id. at 1236. Sean claimed that a few days after his
meeting at JP Morgan, he told Robert “to never do that again, and [Robert]
promised that he would not.” Id. at 1237. Sean believed Robert, who Sean
described as having been “pretty shaken up” by the experience. Id. at 1251.
7
Although neither FINRA nor JP Morgan took any disciplinary measures
against Sean, FINRA nevertheless referred the matter to the Securities and
Exchange Commission, which conducted its own investigation. The SEC spoke
with Robert, who acknowledged that Sean worked at JP Morgan but denied
having discussed Kendle with Sean either before or after he had purchased the
company’s stock. The SEC subsequently closed its investigation without taking
any enforcement action.
Sean left JP Morgan for Perella Weinberg Partners, a boutique investment
bank, in September 2011. While at Perella Weinberg, Sean worked on the
acquisitions of Gen‐Probe, Inc., and CareFusion, both medical device companies,
and learned of the planned acquisition of Lincare Holdings, Inc., a home
healthcare company. Cunniffe purchased the securities of each of these
companies in advance of the acquisitions, doing so at the suggestion of Robert in
each instance, and sold the securities after each acquisition was publicly
announced. Each time, Cunniffe shared the investment proceeds with Robert.
The profits from these five investments totaled $1.15 million. In
approximate terms, Cunniffe received $1 million; Robert received $150,000; and
8
Boccia lost money as a result of the expiration of his KCI call options. There is no
evidence that Sean directly profited from the investments.
Unbeknownst to Robert, the Federal Bureau of Investigation approached
Cunniffe sometime in the spring of 2015, after all of the investments at issue.
Cunniffe decided to cooperate with the FBI, and subsequently recorded several
conversations with Robert. Most relevant to this litigation is a conversation
between Robert and Cunniffe that occurred on March 24, 2015, during which
they had the following exchange regarding Robert’s Kendle investments:
Robert: And then like about a year later I get a call from the SEC
questioning me on that transaction. [Indiscernible] 5,000 dollar
transaction. What are they gonna do? And then nothing happened. I
don’t know what they’re doing now. I figure it’s a 3 year statute, 4
year, 5 year whatever it it’s way way over that. But it pretty much put
a fear in me that a [indiscernible].
Cunniffe: Would scare the shit out of me [indiscernible] that’s for
sure.
Robert: Yeah. I mean I still, I still remember being [indiscernible] years ago.
Sean would always say, ah I can’t believe you [indiscernible]. Said I can’t
believe it. I handed you this on a silver platter and you didn’t invest in this,
and you know. I said, Sean, did you ever get a call from the SEC, like
I’m gonna actually do this [indiscernible], and he says [indiscernible].
I mean [Laughter]. Yeah, that is something.
9
Supp. App. 143‐44 (alterations in original, emphasis added). The district court
referred to the italicized portion of this conversation as the “silver platter
statement,” nomenclature which we hereby adopt.2
Robert was arrested and interviewed by the FBI shortly thereafter. During
the attendant questioning, Robert claimed that Sean only learned of the Kendle
trades “after the fact,” at which point Sean became “[s]urprised and ang[ry],”
prompting Robert to acknowledge that “it was stupid” for him to have invested.
S.D.N.Y. Dkt. No. 120‐2 at 11, 16. When asked why Sean told Robert about other
deals that he was working on following the Kendle episode, Robert speculated
that Sean “figured I probably wouldn’t do it again—you know—in his eyes,
y’know—I’m his father—I’m—y’know—on a pedestal.” Id. at 16. Robert
repeatedly denied that Sean was aware of any of the other investments or that
Sean had intended that Robert would trade on any of the information that Sean
had provided.
2 At trial, Sean expressly denied having said “anything like that” to Robert. Tr. 1328.
10
The FBI asked Robert twice about the silver platter statement. The
following colloquy occurred near the start of the interview:
FBI: [H]ow do you explain a comment you made to Rick [Cunniffe],
that Sean got angry with you when he gave you this information on a
silver platter and you didn’t invest.
Robert: I think I was just saying to Rick because Sean said, “Uh
y’know, all these deals—if you were trading—you could have made
like millions of dollars[,]” and I said, “Sean nobody’s going to trade
and make millions of dollars on this stuff.” That wasn’t his intention.
FBI: So why was Sean giving you this information?
Robert: I think he was just proud of the fact that he was doing deals
and y’know, almost like [“]hey, this deal is going to go way up[,”] not
intending that somebody was going to trade on it.
Id. at 1‐2. Subsequently, the interview returned to the same topic:
FBI: So why did he get mad at you? Why did he get mad at you and
say, “I served this up to you on a silver platter and you didn’t invest
in it.” Why did he get mad at you about that?
Robert: Um, I think that—that day, he was clearly drinking.
FBI: You remember that day specifically?
Robert: I remember—y’know—during that period, because he was
getting divorced, he’s—y’know—and um, he just said[,] I think he
might’ve said, “Y’know, Uh, y’know, I said I was working on this
deal—gee, if you had invested, you would’ve made millions of
dolars.” And I said, “Sean, y’know, people[,] y’know[.]”
11
FBI: Get arrested for that?
Robert: “Get arrested for making millions and millions of dollars on
confidential information.”
FBI: Mmhm.
Robert: And that was the end of the conversation.
Id. at 11.
The operative indictment was filed in the Southern District of New York
on July 15, 2015, charging both Sean and Robert with conspiracy to commit
securities fraud and tender offer fraud, conspiracy to commit wire fraud, tender
offer fraud, and six counts of securities fraud. Robert pleaded guilty to a single
conspiracy count on August 12, 2015, while Sean proceeded to trial. The parties
engaged in extensive motion practice before that trial commenced. The following
recitation reflects only those motions and rulings as are relevant to this appeal.
First, Sean moved to preclude introduction of the silver platter statement
as hearsay. The district court denied that motion, reasoning that Robert’s
relaying of the statement to Cunniffe was against Robert’s penal interest.
Having failed to exclude the silver platter statement, Sean subsequently
moved for leave to introduce Robert’s post‐arrest statements to the FBI in order
12
to impeach the credibility of the silver platter statement. That, too, was denied,
on the ground that Robert did not specifically state that the silver platter
statement had not been made.
Next, Sean sought to compel Robert’s testimony via subpoena. Robert
responded by invoking his Fifth Amendment right against self‐incrimination in
response to each topic on which either Sean or the government hoped to inquire,
after which the district court conducted an in camera proceeding with only Robert
and his counsel present to assess the viability of Robert’s claimed privilege. The
district court thereafter sustained Robert’s invocation of the Fifth Amendment.
As a last resort, Sean sought to have Robert immunized in order to allow
him to testify without the risk of self‐incrimination. The district court denied that
request as well, finding an absence of extraordinary circumstances that would
merit providing Robert with immunity for his testimony.
Sean’s trial began on July 27 and concluded on August 9, 2016. The
cornerstone of his defense was his professed belief that he could trust his father,
who Sean not did intend or expect would misappropriate his confidences for
pecuniary gain. To rebut that argument, the government relied heavily on the
13
silver platter statement. The jury convicted Sean on all counts on August 17,
2016. This appeal followed.
DISCUSSION
I. Privilege Against Self‐Incrimination
In relevant part, the Fifth Amendment provides that “[n]o person . . . shall
be compelled in any criminal case to be a witness against himself.” U.S. Const.
amend. V. “The privilege afforded not only extends to answers that would in
themselves support a conviction under a . . . criminal statute but likewise
embraces those which would furnish a link in the chain of evidence needed to
prosecute the claimant for a . . . crime.” Hoffman v. United States, 341 U.S. 479, 486
(1951). “To sustain the privilege, it need only be evident from the implications of
the question, in the setting in which it is asked, that a responsive answer to the
question or an explanation of why it cannot be answered might be dangerous
because injurious disclosure could result,” the assessment of which requires that
the trial judge “‘be governed as much by his [or her] personal perception of the
peculiarities of the case as by the facts actually in evidence.’” Id. at 486‐87
(quoting Ex Parte Irvine, 74 F. 954, 960 (C.C.S.D. Ohio 1896) (Taft, J.)).
14
The danger that Robert’s potential testimony posed to him is evident from
the subject‐matter on which the parties sought to question him. Those topics
were submitted in advance to the district court and clearly related to both his
trading activities and the veracity of his prior statements to the FBI and SEC.
Robert expressly invoked his Fifth Amendment privilege against self‐
incrimination with respect to each such topic, after which the district court
discussed these issues further with Robert’s counsel in camera. Moreover, the
government made clear that it believed Robert had engaged in additional insider
trading for which he had not been charged and that he had also violated 18
U.S.C. § 1001(a) by making false statements to federal law enforcement officials.
Although trial judges must engage in a “particularized inquiry as to
whether each of [a witness’s] claims of privilege could provide evidence that
would tend to incriminate him” if the danger of self‐incrimination “is not readily
apparent from the implications of the questions asked or the circumstances
surrounding the inquiry,” this is not such a case. Estate of Fisher v. Comm’r of
Internal Revenue, 905 F.2d 645, 649, 651 (2d Cir. 1990). Where the hazards of self‐
incrimination are readily apparent, a witness’s invocation of the privilege against
15
self‐incrimination need not be tested by the rote recitation of questions that have
obvious answers of which the judge is already aware.
II. Procedural Due Process
“The government is under no general obligation to grant use immunity to
witnesses the defense designates as potentially helpful to its cause but who will
invoke the Fifth Amendment if not immunized.” United States v. Ebbers, 458 F.3d
110, 118 (2d Cir. 2006). Nevertheless, “under ‘extraordinary circumstances,’ due
process may require that the government confer use immunity on a witness for
the defendant.” United States v. Praetorius, 622 F.2d 1054, 1064 (2d Cir. 1979). A
defendant requesting such relief must make a two‐pronged showing:
First, the defendant must show that the government has used
immunity in a discriminatory way, has forced a potential witness to
invoke the Fifth Amendment through overreaching, or has
deliberately denied immunity for the purpose of withholding
exculpatory evidence and gaining tactical advantage through such
manipulation. . . . Second, the defendant must show that the evidence
to be given by an immunized witness will be material, exculpatory
and not cumulative and is not obtainable from any other source.
Ebbers, 458 F.3d at 119 (internal quotation marks and citations omitted). “We
review the court’s factual findings about government actions and motive for
16
clear error, but its ultimate balancing for abuse of discretion,” although the
situations in which conferring immunity would be required are “[s]o few and
exceptional” that “we have yet to reverse a failure to immunize.” United States v.
Ferguson, 676 F.3d 260, 291 (2d Cir. 2011). This case is no exception.
Sean first argues that the district court engaged in discriminatory tactics by
conferring immunity on Boccia while declining to immunize Robert. The district
court did not abuse its discretion in rejecting that argument. “Our Circuit’s
approach to defense witness immunity . . . recognizes the essential unfairness of
permitting the Government to manipulate its immunity power to elicit testimony
from prosecution witnesses who invoke their right not to testify, while declining
to use that power to elicit from recalcitrant defense witnesses testimony” that
might exculpate a defendant. United States v. Dolah, 245 F.3d 98, 106 (2d Cir. 2001),
abrogated on other grounds by Crawford v. Washington, 541 U.S. 36 (2004). Yet such
decisions are not discriminatory if they are “consistent with legitimate law
enforcement concerns.” Ebbers, 458 F.3d at 119.
Robert and Boccia were not similarly situated from a law enforcement
perspective. For instance, Boccia and Sean never met, whereas Robert spoke with
17
Sean regularly and served as a conduit for the material nonpublic information
provided by Sean. In addition, Boccia traded in securities for only two of the five
companies at issue in this action, and actually lost money doing so, whereas
Robert profited by trading, directly and indirectly, in the securities of all five
companies. Relatedly, Boccia last traded on information provided by Sean in June
2011, whereas Robert did so in 2014, just a few short months before his arrest.
These distinctions provide ample justification for their disparate treatment.
Nor was it an abuse of discretion for the district court to find that the
government did not overreach. “Prosecutorial ‘overreaching’ can be shown
through the use of ‘threats, harassment, or other forms of intimidation.’” Id.
(quoting Blissett v. Lefevre, 924 F.2d 434, 442 (2d Cir. 1991)). That is simply not
borne out by the record here. The prosecutors in question submitted declarations
asserting that they did not state, suggest, or imply that Robert would face adverse
consequences based on whether or not he chose to testify at Sean’s trial. In
response, all that Sean musters are vague statements made by Robert’s counsel to
the district court that summarize communications between himself and the
government at a high level of generality. The record before us is otherwise barren
18
as to the substance of any representations made by the government to Robert. In
light of the minimal evidence submitted, the facts adduced are insufficient to
establish prosecutorial overreach.
Because Sean has not satisfied the first prong of the requisite showing, we
need not consider the second.
III. Admissibility of Robert’s FBI Interview
For present purposes, we assume arguendo that the silver platter statement
was admissible. The questions then become (1) whether the exclusion of Robert’s
post‐arrest statements to the FBI was erroneous and, if so, (2) is it sufficient,
standing on its own, to require that Sean’s conviction be vacated. For the reasons
set forth in this section, we answer those questions in the affirmative. This
narrow ground mandates that Sean be given a new trial, regardless of whether or
not the silver platter statement was itself hearsay.3
3 The dissent focuses primarily on the ʺpowerfulʺ and ʺoverwhelmingʺ evidence
mustered by the government, as compared to the ʺfeebleʺ defense offered by Sean.
Dissent at 1. But Sean does not challenge the sufficiency of the evidence against him,
and the crux of the dispute is not whether there was an adequate basis for the juryʹs
verdict. Rather, the key question is whether Seanʹs defense was prejudiced by
preclusion of impeachment evidence. We find that it was. That does not mean, of
19
We review the exclusion of Robert’s post‐arrest interview “deferentially”
for “abuse of discretion,” as we do with all evidentiary rulings. United States v.
Dupree, 706 F.3d 131, 135 (2d Cir. 2013). “A district court ‘abuses’ or ‘exceeds’ the
discretion accorded to it when (1) its decision rests on an error of law (such as
application of the wrong legal principle) or a clearly erroneous factual finding, or
(2) its decision—though not necessarily the product of a legal error or a clearly
erroneous factual finding—cannot be located within the range of permissible
decisions.” Zervos v. Verizon N.Y., Inc., 252 F.3d 163, 169 (2d Cir. 2001).
A. Inconsistent Statements
Following the district court’s ruling that the silver platter statement was
admissible, Sean moved for leave to introduce excerpts from Robert’s post‐arrest
FBI interview in which Robert was asked about the silver platter statement. The
district court did not grant such leave, reasoning that “Robert never specifically
denie[d] that [Sean] made the ‘silver platter’ statement itself,” Special App. 3‐4,
course, that we are somehow second‐guessing the jury’s assessment of the evidence
presented, or that we necessarily believe in Sean’s innocence. Those questions are not
for this panel to answer. Rather, we find only that Sean was deprived of the opportunity
due him to defend himself against the evidence introduced at trial.
20
such that the FBI interview and the silver platter statement were not “inconsistent”
for purposes of Federal Rule of Evidence 806.4
4 In the interest of clarity, we reiterate that Robert stated as follows to the FBI:
FBI: [H]ow do you explain a comment you made to Rick [Cunniffe], that
Sean got angry with you when he gave you this information on a silver
platter and you didn’t invest.
Robert: I think I was just saying to Rick because Sean said, “Uh y’know, all
these deals—if you were trading—you could have made like millions of
dollars”[,] and I said, “Sean nobody’s going to trade and make millions of
dollars on this stuff.” That wasn’t his intention. . . . I think he was just proud
of the fact that he was doing deals and y’know, almost like [“]hey, this deal
is going to go way up[,”] not intending that somebody was going to trade
on it. . . .
FBI: So why did he get mad at you? Why did he get mad at you and say, “I
served this up to you on a silver platter and you didn’t invest in it.” Why
did he get mad at you about that?
Robert: Um, I think that—that day, he was clearly drinking. . . . I
remember—y’know—during that period, because he was getting divorced,
he’s—y’know—and um, he just said[,] I think he might’ve said, “Y’know,
Uh, y’know, I said I was working on this deal—gee, if you had invested,
you would’ve made millions of dollars.” And I said, “Sean, y’know,
people[,] y’know[,] . . . Get arrested for making millions and millions of
dollars on confidential information.” . . . And that was the end of the
conversation.
S.D.N.Y. Dkt. No. 120‐2 at 1‐2, 11. Furthermore, we also reiterate that the silver platter
statement refers specifically to the following recollection by Robert: “I mean I still, I still
remember being [indiscernible] years ago. Sean would always say, ah I can’t believe
21
“A hearsay declarant may . . . be impeached by showing that the declarant
made inconsistent statements,” based upon the theory that such a declarant “‘is in
effect a witness’” and therefore “‘[h]is credibility should in fairness be subject to
impeachment . . . as though he had in fact testified.‘” United States v. Trzaska, 111
F.3d 1019, 1024 (2d Cir. 1997) (quoting Fed. R. Evid. 806 advisory committee’s
note). “[S]tatements need not be diametrically opposed to be inconsistent.” United
States v. Agajanian, 852 F.2d 56, 58 (2d Cir. 1988) (quoting United States v. Jones, 808
F.2d 561, 568 (7th Cir. 1986)). As our sister Circuit has recognized in a related
context, “explanations and denials run the gamut of human ingenuity, ranging
from a flat denial, to an admitted excuse, to a slant, to a disputed explanation, or to
a convincing explanation”; a statement could fall at any point on this spectrum
and still be inconsistent. United States v. Meza, 701 F.3d 411, 426 (5th Cir. 2012).
Accordingly, we apply “two tests to determine inconsistency,” asking whether
there is “any variance between” the impeachment material and the hearsay
statement “that has a reasonable bearing on credibility” or whether a jury could
you [indiscernible]. Said I can’t believe it. I handed you this on a silver platter and you
didn’t invest in this . . . .” Supp. App. 143.
22
“reasonably find that a witness who believed the truth of the facts” asserted in the
hearsay statement “would have been unlikely to make a statement” of the
impeachment material’s “tenor.” Ebbers, 458 F.3d at 123 (quoting Trzaska, 111 F.3d
at 1024‐25). We need only consider the first of these tests.
Robert need not have explicitly denied the silver platter statement to render
his discussions with the FBI admissible. Although Robert has consistently
acknowledged that some exchange took place between himself and Sean, the
precise contents and the import of those discussions have not been similarly
uniform. To render the statements inconsistent for purposes of Rule 806, it was
enough that excerpts from his FBI interview varied from his earlier recitation of
the silver platter statement in a manner such that they cast a different meaning on
his discussions with Sean. We find that there is a material difference between the
possibility that Sean might have said “I can’t believe . . . you didn’t invest,” Supp.
App. 143, as opposed to Sean having said “if you were trading—you could have
made like millions of dollars,” S.D.N.Y. Dkt. No. 120‐2 at 2. The former suggests
that Sean expected that Robert would trade, while the latter does not.
That distinction has a reasonable bearing on the credibility of the silver
23
platter statement. See Ebbers, 458 F.3d at 123. Regardless of which version of the
conversation between Sean and Robert was correct, if either, “the fact of the
inconsistency gives the jury an insight into the witness’s state of mind; the
inconsistency shows that the witness is either uncertain or untruthful. In either
event, the inconsistency calls into question the witness’s believability.” Robert P.
Mosteller, et al., 1 MCCORMICK ON EVIDENCE § 34 (7th ed.).
B. Harmless Error Review
The government argues that even if the impeachment materials are
admissible, their exclusion was harmless error. “In order to uphold a verdict in the
face of an evidentiary error, it must be ‘highly probable’ that the error did not
affect the verdict.” United States v. Dukagjini, 326 F.3d 45, 61 (2d Cir. 2003) (quoting
United States v. Forrester, 60 F.3d 52, 64 (2d Cir. 1995)). Put another way, an
“erroneous admission of evidence is harmless ‘if the appellate court can conclude
with fair assurance that the evidence did not substantially influence the jury.’”
United States v. Al‐Moayad, 545 F.3d 139, 164 (2d Cir. 2008) (quoting United States v.
Garcia, 291 F.3d 127, 142 (2d Cir. 2002)). When assessing the importance of
improperly excluded evidence, we consider the following factors:
24
(1) the importance of the unrebutted assertions to the government’s
case; (2) whether the excluded material was cumulative; (3) the
presence or absence of evidence corroborating or contradicting the
government’s case on the factual questions at issue; (4) the extent to
which the defendant was otherwise permitted to advance the defense;
and (5) the overall strength of the prosecution’s case.
United States v. Oluwanisola, 605 F.3d 124, 134 (2d Cir. 2010). Based upon these
considerations, excluding Robert’s post‐arrest FBI interview was not harmless.
The government contends that the impeachment material would have been
cumulative of evidence that was already before the jury in the form of Robert’s
April 16, 2015, conversation with Cunniffe, in which Robert claimed that Sean was
unaware of his investment activities. 5 But that argument does not address the full
5 In relevant part, Robert and Cunniffe had the following dialogue on April 16, 2015:
Cunniffe: In terms of Sean, do you ever throw him money? Or no?
Robert: No.
Cunniffe: No you don’t. That is what I thought. I thought it was just out of the
goodness and kindness of his heart.
Robert: No, it’s just, you know, it’s just stuff he mentions as he goes around,
you know, ‘Oh, I am working on this, I am working on that.’
Cunniffe: That is what I figured.
25
breadth of Robert’s post‐arrest statements. Indeed, it ignores their most salient
feature: Robert’s FBI interview offered fundamentally distinct recollections of the
silver platter exchange that cast a different light on Sean’s intentions. Such
evidence is not cumulative, “particularly where the case revolved around what
[Sean] told [Robert] and what [Robert] told him,” because “stray bits” of evidence
touching upon similar subject matter, such as Robert’s statements exculpating
Sean, “do not substitute for [Robert’s] direct account” of his discussion with Sean.
United States v. Scully, 877 F.3d 464, 475 (2d Cir. 2017).
The only other argument offered by the government is its conclusory
assertion that “[t]here is no reasonable possibility that . . . [the jury] would have
reached a different result” if it had heard Robert’s post‐arrest statements to the
FBI. Gov’t Br. 38. We cannot say the same. “We have repeatedly held that the
Robert: I never told him like, I’ve done anything.
Cunniffe: Okay. Okay. . . . So you never told him you even invested. . . .
Robert: No. No.
Jt. App. 680‐81 (ellipses in original).
26
strength of the government’s case is the most critical factor in assessing whether
error was harmless.” United States v. McCallum, 584 F.3d 471, 478 (2d Cir. 2009).
Given the difficulty of objectively evaluating this factor, appellate courts often look
to the length of jury deliberations and the necessity of a modified Allen charge as
useful proxies. See, e.g., Parker v. Gladden, 385 U.S. 363, 364 (1966) (“[T]he jurors
deliberated for 26 hours, indicating a difference among them as to the guilt of the
petitioner.”); Zappulla v. New York, 391 F.3d 462, 471 (2d Cir. 2004) (“The length
and deliberative conduct by the jury . . . suggests that a conviction was not
assured, at least without the [erroneously admitted] confession.”); United States v.
Grinage, 390 F.3d 746, 752 (2d Cir. 2004) (“After brief deliberations, the jurors sent a
note that they were hung and, only after a modified Allen charge did they reach a
verdict. . . . This was a close case.” (internal citation omitted)).
Here, the trial lasted only eight days, yet the jury deliberated for five.
Moreover, the jurors reported that they were at an impasse and believed
themselves to be deadlocked on the third day of deliberation, prompting the
district court to provide a modified Allen charge in the hopes of spurring them to
reach consensus. This cuts strongly against the government’s unsupported
27
assertion that admission of Robert’s post‐arrest interview would have made no
difference to the jury.
We must also consider “the importance of the unrebutted assertions to the
government’s case.” Oluwanisola, 605 F.3d at 134. “As a general matter, the
prosecution knows intimately the strengths and weaknesses of its case.” Zappulla,
391 F.3d at 471. The silver platter statement was quite literally the first thing
mentioned in the government’s opening statement to the jury, and it was the
very last thing discussed in the government’s rebuttal summation. In its closing
arguments, the government referred to the silver platter statement as
“devastating” no fewer than three times, Tr. 1558, 1559, 1561, describing it as a
“candid admission [that] put the lie to Sean Stewart’s testimony,” id. at 1443, for
which “Sean Stewart couldn’t come up with an explanation,” id. at 1561. Such
“heavy reliance . . . expose[s] its central role in persuading the jury to convict,” as
the government “clearly understood that [the silver platter] statement was a
powerful weapon” in its arsenal. Wood v. Ercole, 644 F.3d 83, 96‐97 (2d Cir. 2011).6
6 The dissent argues that the strength of the evidence is such that Sean may well have
been convicted even absent the silver platter statement. However, that possibility does
28
To be clear, we do not mean to suggest that the government’s emphasis on
the silver platter statement was improper. The district court ruled that the silver
platter statement was admissible. Under those circumstances, it is
understandable that the government would introduce and rely on it. But the
government’s apparent recognition regarding “the impact [the] statement would
have on the jury” nevertheless confirms our belief that it was, in fact, important
to the prosecution’s case. Id. at 98; see also Zappulla, 391 F.3d at 472 (“The fact that
the prosecutor relied on the confession, thereby running the risk of reversal on
appeal, tends to show that the prosecutor understood . . . that the confession was
not “render[] harmless” the exclusion of Robert’s post‐arrest statements once the silver
platter statement was introduced, Dissent at 20, because neither we nor the dissent can
know what result would have obtained had the government not introduced it in the
first place. Indeed, the heavy emphasis the government placed on the silver platter
statement, as well as the government’s concession at oral argument that the statement’s
introduction would not have been harmless (assuming arguendo that it had been
erroneous), both suggest that it did not only ʺadd[]incrementallyʺ to the prosecution’s
case. Id. Much of the evidence marshaled by the dissent is undisputed, see id. at 11‐19,
but the silver platter statement is by far the most compelling evidence contradicting
Seanʹs own testimony that he did not intend for Robert to benefit from the information
Sean was relaying to him. As intent to benefit the tippee is an element of securities
fraud, we cannot know whether Sean would have been convicted if the silver platter
statement had not been introduced—or, alternatively, if it had been introduced but
impeached.
29
a crucial piece of evidence.”). In light of the silver platter statement’s importance,
that it went unrebutted is a critical strike against the notion that exclusion of
Robert’s post‐arrest statements to the FBI might have been harmless error.
To find Sean guilty, the jury had to conclude that Sean intended that his
father would trade, thus personally benefitting from the misappropriation of his
employer’s material nonpublic information. See Dirks v. SEC, 463 U.S. 646, 663 n.23
(1983) (“Scienter—‘a mental state embracing intent to deceive, manipulate, or
defraud’—is an independent element of a Rule 10b‐5 violation.” (quoting Ernst &
Ernst v. Hochfelder, 425 U.S. 185, 193 n.12 (1976)); United States v. Martoma, 894 F.3d
64, 76 (2d Cir. 2018) (“[T]he personal benefit element can be met by evidence that
the tipper’s disclosure of inside information was intended to benefit the tippee.”).
That conclusion was powerfully supported by evidence that Sean had said to
Robert, “I can’t believe it. I handed you this on a silver platter and you didn’t
invest in this.” Supp. App. 143. While other evidence of Sean’s guilt was proffered,
the silver platter statement was the most suggestive evidence of Sean’s intent that
Robert should trade on the tips Sean supplied.
30
The jury’s decision on the crucial question of Sean’s intent might well have
been influenced by a doubt as to whether Sean had truly said that he served up
information on a silver platter or that he could not believe Robert had not traded
on it. Robert’s post‐arrest statements did not repeat those critical details, the
absence of which might have supported inferences that Sean did not know,
expect, or intend that his father would invest based upon their discussions. If the
silver platter statement is “damning proof” that Sean “acted with deliberate
intent that his father trade on material nonpublic information,” as argued by the
government, S.D.N.Y Dkt. No. 101 at 20, then it hardly seems unlikely that
Robert’s alternative versions of the same conversation between himself and Sean
might have influenced the jury’s deliberations. Although Robert never expressly
denied the silver platter statement, his post‐arrest recollections offer a potentially
different interpretation that could, at minimum, have tempered the statement’s
“devastating” effect.
On this record, we cannot conclude with fair assurance that the admission
of Robert’s post‐arrest FBI interview might not have substantially influenced the
jury. See Al‐Moayad, 545 F.3d at 164. The dissent is surely correct that evidence
31
supporting several elements of the counts against Sean was “overwhelming,”
Dissent at 1; indeed, much of it was undisputed. Nevertheless, Seanʹs intent was
the central point of contention between the parties. On that issue, the
governmentʹs evidence was at its weakest. The dissent’s compelling recitation of
evidence relating to other elements of the crimes alleged does not make the
evidence of intent any stronger. Because the impeachment material might have
undermined the silver platter statement in the eyes of the jury, it risked leaving the
government “with a substantially weaker case” as to Seanʹs intent such that “a
guilty verdict would be far from assured.” Wood, 644 F.3d at 96.
With great respect for the district court, because this evidentiary error was
not harmless, we are compelled to vacate Sean’s conviction. We therefore need not
reach the question whether the silver platter statement was admissible under a
hearsay exception—either the penal interest or the co‐conspirator exception.
Nonetheless, because the district court will need to rule of the admissibility of the
silver platter statement upon retrial, we think it desirable to give the court
guidance on this question. The district court did not rule on whether the silver
platter statement was admissible under the co‐conspirator exception to the
32
hearsay rule as codified at Federal Rule of Evidence 801(d)(2)(E). If the district
court had decided that it was admissible under the co‐conspirator exception, we
would have affirmed that ruling. There is ample evidence in the record to show by
a preponderance that a conspiracy existed between Robert and Sean with the
objective that Robert trade on the information Sean provided, and that Robert’s
silver platter statement to Cunniffe furthered the objective of the Robert‐Sean
conspiracy.7 This may prove a stronger basis for admission of the silver platter
7 We note that the co‐conspirator exception looks not to whether the declarant (Robert)
made the statement to one who conspired with him (Cunniffe)—which the district court
appeared to treat as the test—but rather whether the declarant (Robert) conspired with
the defendant against whom the statement is offered (Sean), and that the statement was
made during the course of their conspiracy and in furtherance of its objective. United
States v. Farhane, 634 F.3d 127, 161 (2d Cir. 2011) (citation omitted). The co‐conspirator
exception stems from the theory that persons in a conspiracy with one another act as
each other’s partners or representatives in carrying out the objectives of the conspiracy.
2 MCCORMICK ON EVIDENCE, supra, § 259; see also Edmund M. Morgan, The Rationale of
Vicarious Admissions, 42 Harv. L. Rev. 461, 464 (1929). The McCormick treatise explains:
Conspiracies to commit a crime . . . are analogous to partnerships. . . . If A
and B are engaged in a conspiracy, the acts and declarations of B
occurring while the conspiracy is actually in progress and in furtherance
of the design . . . . may . . . be introduced against A as representative
admissions to prove the truth of the matter asserted. . . . Federal Rule
801(d)(2)(E) is consistent with the foregoing analysis, treating as [a
33
statement than the penal interest exception. Of course, we express no view on Sean
Stewart’s ultimate guilt or innocence, which must be decided by a jury of his peers
if he is retried.
CONCLUSION
For the foregoing reasons, we VACATE Sean Stewart’s conviction and
REMAND this matter to the district court for further proceedings.
party’s] admission a statement ‘made by the party’s co‐conspirator during
and in furtherance of the conspiracy.
2 MCCORMICK ON EVIDENCE, supra, § 259 (footnotes omitted).
34
BERMAN, District Judge, dissenting:
I. Overview
Defendant Sean Stewart was fairly tried and convicted of all nine insider
trading related counts in the Indictment. The Government’s case against Sean
consisted of powerful direct and circumstantial evidence and was
“overwhelming.” See United States v. Dowdell, 737 F. App’x 577, 583 (2d Cir. 2018)
(“[T]he government’s evidence would have been overwhelming even if [the
excluded evidence had been admitted.]”), cert. petition docketed sub nom. Derrick
Wilson v. United States, No. 18‐6417 (U.S. Oct. 24, 2018). It included Sean’s own
incriminating admissions, the testimony of 20 witnesses one of whom was a
cooperator, recorded conversations, and written trading records and emails
reflecting illegal securities trades.
Sean’s defense, by contrast, was feeble. Sean took the stand and admitted
that he knowingly and regularly disclosed details of confidential deals that he
was working on at JPMorgan Chase (JPMorgan) and Perella Weinberg Partners
(Perella) to his father Robert Stewart (a certified public accountant and former
1
chief financial officer).1 Robert Stewart, together with his associates, made over
$1.1 million trading on Sean’s inside information. Sean admitted that he knew
that Robert purchased and sold shares of Kendle International Inc. (Kendle) after
Robert had learned from Sean that Sean was working on a deal at JPMorgan
involving the acquisition of Kendle. Sean also confirmed that he intentionally
(and regularly) violated “bedrock” finance industry confidentiality norms and
obligations and lied to JPMorgan and to Perella – and to industry regulators,
including the Financial Industry Regulatory Authority (FINRA) – by consistently
discussing his deal work with Robert (and other family members). Perhaps most
tellingly, Sean testified that he lied about disclosing inside information because
he “knew it would be potentially damaging for my prospects at the time. I had worked
extremely hard to get to the position I was in at that point, and I thought anything might
potentially derail my future.”2 Tr. 1236. “Intent elements are everywhere in our law
and are generally proved with circumstantial evidence. Insider trading is no
1 The majority acknowledges that “although Sean knew that company policy
forbade him from discussing confidential information with anyone other than his
colleagues, he did not abide by that rule.” Op. at 4 (citation omitted).
2 Sean also testified that his father, Robert Stewart, lied to a Securities and
Exchange Commission (SEC) investigator about Sean’s disclosures of inside information
to him. Id. at 1350. Sean explained that his father protected him the same way he
protected his father. Id.
2
different. A factfinder may infer the tipper intended to benefit the tippee from
the sort of objective evidence that is commonly offered in insider trading cases.”
United States v. Martoma, 894 F.3d 64, 76 (2d Cir. 2017) (rehearing en banc denied)
(citations omitted).
Sean’s unpersuasive and inconsistent excuses for improperly disclosing
confidential business matters to Robert and other family members were that he
“grew up in a household where there were no secrets, and we shared everything
about our lives”; and that his father lied when he said to Sean that he would
never trade based on anything they had ever discussed (following the unlawful
insider Kendle trades). Tr. 1189, 1251. It is no surprise that Sean’s jury – whose
task it was to assess witness credibility and to decide what the facts were – used
common sense and rejected Sean’s “tight knit family” story. See United States v.
Payne, 591 F.3d 46, 60 (2d Cir. 2010) (“Assessments of witness credibility and
choices between competing inferences lie solely within the province of the
jury.”).3
3 The key question facing the jury, according to the majority, “was whether to
believe Sean when he denied that he knew that his father would trade on the
information that Sean had provided.” Op. at 3. The majority acknowledges that
“[e]vidently, they did not, as Sean was convicted on all counts brought against him.”
Id.
3
In sum, this case is about a sophisticated, Yale educated mergers and
acquisitions investment banker, Sean Stewart, who knew to a certainty that he
was obligated not to “tip off” family and friends about companies and corporate
deals that he was working on. Yet, he did exactly that. And, almost immediately
after Robert Stewart received inside deal information from his son Sean, Robert
and his associates traded in securities of companies involved in those deals.
When the Stewarts were caught, Robert pled guilty to one count of
conspiracy to commit securities fraud based upon inside information. One of
Robert’s associates, Richard Cunniffe (“Cunniffe”), who also traded upon Sean’s
inside information, pled guilty to insider trading and wire fraud.
Sean pled not guilty and was the principal defense witness at his trial.
(Robert refused to testify at Sean’s trial.) Sean’s testimony clearly was not
persuasive to the jury, as he was convicted of all nine counts charged in the
Indictment, i.e., one count of conspiracy to commit securities fraud and tender
offer fraud; one count of conspiracy to commit wire fraud; six counts of securities
fraud; and one count of securities fraud in connection with a tender offer.
4
II. The Majority Opinion
In analyzing Robert Stewart’s May 14, 2015 post arrest statements and the
doctrine of “harmless error,” the majority fails to acknowledge the
overwhelming evidence of the Defendant’s guilt, although it is clearly laid out in
the trial transcript. See pp. 9‐14 infra. The majority also ignores longstanding
Second Circuit precedent, including Perkins v. Herbert, 596 F.3d 161, 179 (2d Cir.
2010) and United States v. Reifler, 446 F.3d 65, 87 (2d Cir. 2006), which hold that
“the strength of the prosecution’s case [is] the most important factor in our
inquiry.” This factor compels a finding that any error in this case was harmless.
And, in remanding for a new trial, the majority fails to defer to the jury in
Sean Stewart’s case. “Because we accord a high degree of deference to the jury’s
evaluation of witnesses credibility, jury verdicts should be disturbed with great
infrequency.” See Maureen Christensen v. Cty. of Dutchess, N.Y., 548 F. App’x 651,
653 (2d Cir. 2013).
III. Sean’s Conviction
The jurors in Sean’s case appear to have been thorough and professional
throughout their deliberations, as the ten (10) notes sent by the jury to the district
judge confirm. Because this was a financial crimes case, the jury was required to
5
sort through well over 1,000 trial exhibits, including securities trading records,
emails, phone call recordings, and the JPMorgan and Perella employee codes of
conduct. The jury also had to assess the credibility of the 20 witnesses at trial,
including the Defendant and cooperating witness Richard Cunniffe. The jury
started its deliberations on Tuesday, August 9, 2016 at 12:20 p.m., and reached its
verdict on Wednesday, August 17, 2016 at 9:59 a.m., a total of 4.5 days. Jurors
deliberated from 9:30 a.m. to no later than 4:30 p.m.; did not sit on weekends;
and did not sit at all on Monday, August 15, 2016.
IV. Silver Platter Statement
District Judge Laura T. Swain was at all times thorough and fair to the
parties in this criminal litigation.4 Judge Swain correctly admitted into evidence
4 Two of Judge Swain’s substantive instructions to the jury were as follows:
(1) “In order to establish the third [insider trading] factor that Mr. Stewart
anticipated that his father would trade on the information, the
government must prove beyond a reasonable doubt that, at the time the
information was disclosed, Mr. Stewart anticipated that his father
would use the information to trade in securities or cause others to use
the information to trade in securities. The government cannot prevail by
establishing only that Mr. Stewart shared information that he was
required to keep confidential. The government must, instead, prove
beyond a reasonable doubt that at the time the information was
disclosed, Mr. Stewart anticipated that his father would use that
information to trade in securities.” Tr. 1605‐06.
6
the silver platter statement, after having determined that it was “probative of
Robert’s alleged collusion with Sean.” S.D.N.Y. Dkt. 153. She also stated that the
Government had made a “strong” argument for admission under Federal Rule of
Evidence 801(d)(2)(E) because the silver platter statement involved “a discussion
between admitted co‐conspirators.” S.D.N.Y. Dkt. 153. Admission of the silver
platter statement, as the majority acknowledges, is consistent with United States
v. Farhane, 634 F.3d 127, 161 (2d Cir. 2011), because the statement was made
during the course of and in furtherance of a conspiracy.
Post Arrest Statements
Following briefing and oral argument, Judge Swain denied Sean Stewart’s
motion to admit the post arrest statements made by Robert Stewart. She did so
(2) “Because an essential element of the crime charged is intent to defraud,
good faith on the part of Mr. Stewart 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 actions were not in furtherance of any unlawful
scheme. Thus, it is a complete defense to the charge of insider trading if
Mr. Stewart believed, in good faith, that any information that he
provided to his father would not be used for trading purposes. A person
who acts on a belief or opinion honestly held that turns out to be wrong,
is not punishable under these statutes.” Tr. 1608.
The jury obviously concluded by its verdict that Sean anticipated and intended that his
father would use the inside information provided by Sean to trade in securities, and that
Sean had acted in bad faith.
7
because she found “no inconsistency” between Robert’s post arrest statements
and the silver platter statement.5 S.D.N.Y. Dkt. 136.
In concluding that the post arrest statements were not inconsistent with
the silver platter statement, Judge Swain may have been persuaded by the facts
that the post arrest statements appear to be a desperate attempt to minimize
Sean’s illegal behavior and that they do not include a disavowal or revocation of
the silver platter statement. Rather, the post arrest statements seek to explain
away Sean’s unlawful behavior by reference to his “divorce,” his “bragging,” his
“drinking problem,” and his unawareness of “what he’s saying.” See S.D.N.Y.
Dkt. 120, Ex. B.
Robert’s post arrest statements include the following quotations: “I
remember – y’know – during that period, because he was getting divorced, he’s–
y’know‐‐and um, he just said…I think he might’ve said, ‘Y’know, Uh, y’know, I said I
was working on this deal – gee, if you had invested, you would’ve made millions of
dollars[’]”; “I think [Sean] was just – you know – kind of bragging. Sean’s
5 The majority describes two tests for inconsistency: (1) “any variance between
the statement and testimony that has a reasonable bearing on credibility;” and (2)
“could the jury reasonably find that a witness who believed the truth of the facts
testified to would have been unlikely to make a statement of this tenor.” United
States v. Trzaska, 111 F.3d 1019, 1025 (2d Cir. 1997) (citations omitted)).
8
bragging about, ‘Hey, I’m working on this deal, that deal’”; “I think that – that
day [Sean] was clearly drinking. . . . [H]e’s got a drinking problem”; and
“Y’know – I think – sometimes he [Sean] doesn’t realize what he’s saying.” Id.
(emphasis added). Although the majority believes that the post arrest statements
may have left the Government “with a substantially weaker case,” Op. at 32, it
seems at least equally likely that Robert’s comments may further have convinced
the jury of Sean’s guilt.
In analyzing harmless error, the majority errs when it concludes that jury
deliberations were exceptionally long and that the jury was deadlocked. Four
and one half days of deliberations over nine counts in a securities fraud case is
not, in my experience, excessive. Trial judges routinely advise jurors – as Judge
Swain did at Sean’s trial – that they may take as much time as they need for full
review, discussion and consideration of the evidence. And, a careful review of
the trial transcript and the jury notes presented to the district judge on Thursday,
August 11, 2016 and Friday, August 12, 2016, shows that the majority incorrectly
concludes that the jury was “deadlocked.” Op. at 27. The records show only that
the jury may have been temporarily stuck or at impasse as to one particular
count – out of the nine counts in the Indictment. S.D.N.Y. Dkt 181, Court Ex. 15
9
(Jury Note, dated August 11, 2016: “If it is a split vote on a count and the jury is
stuck . . . ?); id., Court Ex. 22 (Jury Note, dated August 12, 2016: “If the jury is at
an impasse on a particular count . . . ?”); Tr. 1705 (District court: “You’ve
indicated in your note that you’re at an impasse with respect to a particular
count.”). The jury was able to reach unanimous agreement as to that particular
count – and to reach a verdict of guilty on all nine counts – following a routine
instruction from Judge Swain to return to the jury room and review and continue
to discuss the evidence and their views with each other.
V. The Overwhelming Strength of the Prosecution’s Case Against Sean
The majority contends that Judge Swain’s post arrest statement ruling was
error and an abuse of her discretion. It requires that the jury’s guilty verdict be
vacated, and directs that there be a new trial. In my view, even assuming,
arguendo, that the post arrest statements were legally inconsistent with the silver
platter statement, Judge Swain’s failure to admit the post arrest statements was
harmless error because the strength of the Government’s case (i.e., the evidence
of Sean’s guilt) was overwhelming. See Reifler, 446 F.3d at 87 (“In assessing [an]
error’s likely impact . . . the strength of the prosecution’s case is probably the
single most critical factor’”) (quoting Latine v. Mann, 25 F.3d 1162, 1167–68 (2d
10
Cir. 1994)); United States v. Rolle, 631 F. App’x 17, 21 (2d Cir. 2015) (“[A]ny error
was harmless in light of the overall strength of the governmentʹs case.”); United
States v. Gupta, 747 F.3d 111, 136‐37 (2d Cir. 2014); United States v. Miller, 626 F.3d
682, 690 (2d Cir. 2010) (“Here, there can be no serious claim that the district
court’s evidentiary ruling had any likelihood of affecting the outcome of the case.
The government’s evidence of guilt was overwhelming.”).
The direct and circumstantial evidence of Sean’s guilt was overwhelming
and included substantial evidence that Sean intended that Robert trade upon
Sean’s tips.
A. Evidence of Sean’s Intent
1. Sean admitted at trial that in violation of his ethical obligations he
had often disclosed inside information to his father, Robert Stewart,
about deals and companies he was working on at JPMorgan (2003 to
2011). The inside information included details about mergers and
acquisitions involving Kendle International Inc. (“Kendle”) and
Kinetic Concepts, Inc. (“KCI”). Sean also knew that Robert “may
have picked up the name Kendle and traded in [the] stock” from
their unlawful discussion. Tr. 1235.
2. Sean also admitted that he continued to disclose inside information
to his father after leaving JPMorgan to join Perella and after he knew
Robert had traded in Kendle stock. At Perella, the inside information
disclosed related to mergers and acquisitions involving Lincare
Holdings, Inc. (“Lincare”), CareFusion Corp. (“Carefusion”), and
Gen‐Probe Inc. (“Gen‐Probe”).
11
3. Sean’s explanation for disclosing confidential information to his
family included: “[Sean:] Yeah, with [my wife] and with my parents
we had a very, very close relationship, and I spoke very freely with
them. I grew up in a household where there were no secrets, and we
shared everything about our lives.”). Id. at 1185. Sean: “I’ve come to
know now that [Robert] traded in these stocks and, unfortunately,
the only way he could have gotten that information is from our
discussions.” Id. at 1252. Sean’s wife was a mergers and acquisitions
attorney at a prominent New York City law firm.
4. Sean also admitted at trial that he had violated the JPMorgan and
Perella codes of conduct by disclosing confidential client
information. Surprisingly, this does not seem to be of great concern
to the majority who observe: “Although Sean knew that company
policy forbade him from discussing confidential information with
anyone other than his colleagues, he did not abide by that rule.” See
Op. at 4 (citation omitted).
5. Sean testified that immediately after JPMorgan’s compliance officers
reached out to him in August 2011 to schedule an interview
regarding the FINRA list of persons who suspiciously traded in
Kendle stock, Sean met with his father at the Yale Club and told
Robert that Robert’s name was on the list.
6. But Sean lied to JPMorgan when he said his father’s name was not
on the FINRA list. Sean’s email to JPMorgan, dated August 2, 2011,
falsely stated “don’t know anyone [on the list].” Supp. App. 77. At
his August 26, 2011 interview with JPMorgan’s compliance officers
about the FINRA list, Sean lied again when he denied that his father
could have gotten information from him regarding Kendle. Id; see p.
11 infra. After the interview, Sean “called [his] dad and let him know
that the investigation had been concluded. I told him to never do that
again, and he promised that he would not.” Tr. 1237.
7. Sean admitted that apart from discussing the names of companies
involved in mergers and acquisitions he was working on, he also
12
provided his father with details about the timing of public
announcements related to those deals. Id. at 1188 (Defense counsel:
“And did you ever tell your father anything about the timing of the
Kendle deal?” Sean: “Only that the expected or targeted
announcement [of Kendle’s acquisition] date conflicted with our
wedding.” Defense Counsel: “So you did talk to him about the timing.”
Sean: “Yes.”) (emphasis added).
8. At his guilty plea on August 12, 2015, Robert stated: “I obtained
material, nonpublic information about a number of securities from
my son, who I understand had access to this information in the
course of his job. For certain of these securities, I provided the
information to another individual, Rick Cunniffe, so that he could
trade in these securities and share trading profits with me.” S.D.N.Y.
Dkt. 33.
9. At Sean’s trial, the Government introduced into evidence the
following April 16, 2016 recorded conversation between Robert
Stewart and cooperator Richard Cunniffe:
Cunniffe: Did Sean, uh did Sean do this [provide inside
information] out of the goodness and kindness of his heart
for you?
Robert: No, you know what? I think he gets angry at times.
Angry at the industry.
Cunniffe: Oh, yeah?
Robert: And it was only . . . I think it was only three—three
times. He has actually told me some other ones and I just
discounted them and just sa[id] that you know what, I don’t
want to know about it[.] App. 678‐79.6
6 See also p. 6 supra where Robert, in his post arrest statements, also attributes
Sean’s disclosures of inside information to Sean’s drinking problem; Sean’s divorce;
Sean’s bragging; and Sean’s lack of awareness.
13
B. Sean’s Full Awareness of the Requirement of Confidentiality
10. Sean went to work at JPMorgan after he graduated from Yale in 2003.
He started as an analyst in the mergers and acquisitions group. In
2006, he was promoted to “associate.” Tr. 133. In 2010, he was
promoted to “vice president.” Id. at 1135. Sean testified that he “knew
everything that was going on” when working on a “particular
transaction,” id. at 1334, and that the majority of the deals he worked
on involved public companies. Id. at 1136.
11. Sean testified that he knew that “confidentiality was the bedrock
principle of [his] job.” Id. at 1359 (emphasis added). He understood
that “we were not expected to talk about confidential information
with anyone not involved in a particular deal team.” Id. at 1188. Sean
testified that he received “extensive” compliance training at
JPMorgan, id. at 1188, i.e., at least once a year from 2003 to 2011. Sean
also testified that he also “underwent new employee compliance
training” when he joined Perella in October of 2011. Id. at 1358.
12. Sean admitted at trial that he lied when he affirmed to JPMorgan on
July 26, 2011 that he was “in compliance with [JPMorgan’s] code of
conduct,” because he had disclosed confidential information about
JPMorgan’s clients, including Kendle, to his parents and his wife. Id.
at 1356‐58.
13. Sean also admitted at trial that he disclosed confidential information
to his father about the Lincare, CareFusion, and Gen‐Probe deals
which he either learned about or worked on at Perella, id. at 1252;
and that he lied to Perella when he “affirmed that [he] was in
compliance with [its] confidentiality policies.” Id. at 1360.
14. At Sean’s trial, the Government presented as an exhibit JPMorgan’s
Code of Conduct which states: “Do not disclose confidential
information to anyone outside the firm unless you are authorized to
do so. Where such disclosure is authorized, the confidentiality or
14
privacy agreement may be required. Check with the legal and
compliance department.” Id. at 1357.
15. The Government also presented as an exhibit at Sean’s trial Perella’s
written policy on confidential information which states: “Existing or
potential client or investor information, information about the
existence of or the potential for a client, client assignment, investor
or investment should be considered confidential information. . . . You
may not disclose confidential information to any person outside the
firm, including family members, except as required in the performance
of the firm’s business activities.” Id. at 1359‐60 (emphasis added).
C. Sean’s Lies During the FINRA and SEC Investigations
16. Sean learned of a FINRA inquiry into suspicious Kendle stock
trading on May 25, 2011, when he was forwarded an email from a
colleague. The Government presented phone records at Sean’s trial
showing that Sean spoke to Robert that same day and many more
times in the days and weeks shortly afterward. Supp. App. 16‐28; see
also pp. 1‐2 supra.
17. The Government presented at trial an August 2, 2011 email from
JPMorgan to Sean and other JPMorgan employees which contained
a list of names of persons who traded in Kendle stock (provided to
JPMorgan by FINRA). JPMorgan requested that its employees
review the list to see if there were any familiar names on it so that
JPMorgan could notify FINRA. The list included “Robert Stewart.”
Supp. App. 99. Sean testified that he knew that the purpose of a
FINRA cross check was to “look out for potential insider trading.”
Tr. 1151.
Sean’s response email to JPMorgan, also dated August 2, 2011, stated
“don’t know anyone [on the list].” Supp. App. 77. Sean testified that
he lied to JPMorgan about the FINRA list because, as noted, he
“knew it would be potentially damaging for my prospects at the
time. I had worked extremely hard to get to the position I was in at
15
that point, and I thought anything might potentially derail my
future.” Tr. 1236 (emphasis added).
18. JPMorgan’s compliance officer, Ryan Hickey, testified at Sean’s trial
that after Sean denied knowing anyone on the FINRA list (that
included his father’s name), and after a FINRA examiner followed
up with Hickey by asking to see Sean’s response, JPMorgan, in turn,
asked Sean about the list a second time. Following the second
inquiry, Sean admitted to JPMorgan that his father’s name was,
indeed, on the FINRA list.
19. JPMorgan’s compliance officer also testified that Sean told him that
he (Sean) had “no work discussions” with his father. Tr. 902, 1338.
20. Sean testified that, at his August 26, 2011 meeting with JPMorgan’s
compliance officials about the FINRA list, he also lied about his
father’s trading: “I lied. I told them that there was no way that my
dad could have gotten that information from me regarding the
purchase of Kendle.” Id. at 1236‐37.
21. An SEC investigator, Michael Watson, testified at Sean’s trial that in
May 2013 he interviewed Robert about his 2011 Kendle trading.
Robert told Watson that his Kendle trades had been based on his own
research, and that “he did not talk to his son about any work‐related
matters.” Id. at 217.
22. Sean testified that his father “lied about [his and Sean’s] conduct
when he spoke to the SEC.” Sean said that Robert “protected [Sean] the
same way [Sean] had protected him.” Id. at 1350 (emphasis added); see
also p. 1 n.1 supra.
D. Robert Stewart and His Associates’ Unlawful Trades
23. Robert Stewart, Richard Cunniffe, and Mark Boccia (“Boccia”)
traded securities and profited from the inside information provided
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by Sean. They engaged in trades in Kendle, KCI, Lincare, Carefusion
and Gen‐Probe.
24. The Government presented trading records at trial that showed that
– even after their Kendle trades – Robert Stewart and his associates
continued to make trades in companies during the time periods that
Sean was working on deals involving those same companies,
namely, KCI, Lincare, CareFusion Corp., and Gen‐Probe. See ¶¶ 28‐
37 infra. These records corroborated testimony from Robert Stewart’s
associates that Robert was passing along insider stock tips to them
from Sean. See, e.g., Tr. 531, 775; Supp. App. 30, 32; see also ¶¶ 28‐37
infra.
25. At his guilty plea on May 15, 2015, Richard Cunniffe admitted that
he had unlawfully traded in stock options of KCI, Gen‐Probe,
Lincare, and Carefusion, based upon insider information he received
from Robert. Cunniffe agreed to cooperate with the Government and
to record conversations with Robert. Tr. 625. Cunniffe testified that
Robert told him that “it was [Sean] who was giving [Robert] the
information on the stocks[.]” Tr. 733 (emphasis added); 623‐624
(Cunniffe: “He told me that his son Sean had given him the
information.”).
Cunniffe also testified that when Robert told him he was getting
information from Sean, Cunniffe told Robert that he “didn’t want to
know anything about it[.] I wanted to keep as much distance from
any knowledge of the information. I knew [Robert] was an
accountant and a CFO of some firms in the past[.] . . . I wanted to
keep as much distance as possible.” Id. at 662.
26. At Sean’s trial, the Government questioned Cunniffe as follows:
Government Attorney: “Do you know why [Robert] asked you to
make those trades in your account as opposed to his account?” Id. at
623. Cunniffe replied: “I had asked him why he didn’t do it in his
own account, and he had mentioned that he was too close to the source.”
Id. (emphasis added).
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27. Mark Boccia testified at Sean’s trial that Robert had asked him to
purchase Kendle stock options on Robert’s behalf in 2011. As noted,
Kendle was a company which Sean was advising in confidential
acquisition negotiations.
E. Additional Trades Based on Inside Information
28. Cunniffe testified that in or about March 2012, when Sean was
representing Hologic, Inc. in negotiations towards an acquisition of
Gen‐Probe, Robert told Cunniffe that he “should take a look at
GPRO, the ticker symbol for Gen‐Probe” because it was “going to be
a takeover target.” Tr. 711‐12. Cunniffe purchased Gen‐Probe call
options and made $181,000 in profits which he split with Robert.
Supp. App. 29.
29. Boccia and Cunniffe each testified that in or about the summer of
2013, when JPMorgan was representing KCI (Kinetic Concepts, Inc.)
in negotiations concerning KCI’s acquisition by Apax Partners,
Robert asked them to purchase KCI call options on his behalf. Tr. 368‐
69 (Government Attorney: “What prompted you to buy KCI on April
5th?” Boccia: “Bob came to me and says, Mark, I’ve got another stock
I just want to get a few units in, can you buy them for me, I think it’s
going to be another short‐term thing. So I bought them.”); id. at 645
(Cunniffe: “Bob said he was interested in buying some call options,
and I asked him at what strike [price] and at what maturity date he
wanted to make the purchase.”).
30. Cunniffe testified that in or about June 2012 (which was soon after
Sean had learned that Linde AG was seeking to acquire Lincare,
Supp. App. 54, Robert told Cunniffe that “he had received another
tip and that [Cunniffe] should look at LNCR, which is Lincare.” Tr.
725. Cunniffe invested in Lincare stock, and thereafter, split profits
of approximately $414,000 with Robert.
18
31. Cunniffe testified that in the summer of 2014 (when Sean was
representing Carefusion in negotiations concerning Carefusion’s
acquisition by Becton, Dickinson & Co.), Robert told Cunniffe that
“he should take a look at CFN [i.e., Carefusion].” Id. at 755. Cunniffe
then made trades in Carefusion stock options which generated
approximately $444,000 in profit. Supp. App. 32. He split the profit
with Robert.
32. The Government presented at trial Robert Stewart’s trading records
which show that he traded in Kendle stock from February 2011
through May 2011. App. 588. At the time, Sean was working on the
Kendle acquisition deal at JPMorgan. The Government presented
Boccia’s trading records which show that he traded in Kendle stock
options during the same time period. Supp. App. 37‐38.
33. The Kendle stock options which Boccia purchased had strike prices
timed throughout May 2011 (the same month in which Kendle’s
acquisition was announced). Kendle’s stock price was then at a high
point. See Tr. 367‐77 (Government Attorney: “Why did you sell all of
your Kendle holdings on May 5th?” Boccia: “Because Bob had said
to me, hey, Mark, I think I want to get out of the options, I don’t think
it’s going to go any higher.”).
34. The Government presented trading records which show that both
Boccia and Cunniffe traded in KCI stock options from February
through July 2011. Supp. App. 37‐41. This was the time period that
JPMorgan was representing KCI in its acquisition negotiations.
35. The Government presented trading records which show that
Cunniffe traded in Gen‐Probe options in April and May 2012. Supp.
App. 42. This was the time period that Sean was working on the Gen‐
Probe acquisition deal at Perella.
36. The Government presented emails which show that Sean received an
update about the Lincare acquisition by Linde AG on June 12, 2012.
19
Supp. App. 42‐45. Cunniffe testified that he purchased Lincare stock
options at the end of June 2012 after getting a tip from Robert.
37. The Government presented trading records which show that
Cunniffe traded in Carefusion stock options from September
through October 2014. Supp. App. 32‐34. This was a few months after
Sean worked on the Carefusion acquisition deal at Perella.
Paragraphs 1‐37 above clearly demonstrate the overwhelming strength of
the Government’s case against Sean. And, these paragraphs do not include the
silver platter statement. The point is that even without the silver platter
statement, the Government would have presented powerful evidence of Sean’s
intent to commit insider trading and benefit his father. See ¶¶ 28‐37. The silver
platter statement made the Government’s case even stronger, i.e., adding
incrementally to the overwhelming evidence of Sean’s guilt. The evidence
renders harmless any error by the district court in excluding the post arrest
statements.
Respectfully, I believe the majority errs in vacating Sean’s conviction and
ordering a new trial.
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