Securities & Exchange Commission v. Payton
176 F. Supp. 3d 346
S.D.N.Y.2016Background
- SEC sued Daryl Payton and Benjamin Durant for insider trading in SPSS securities ahead of IBM's acquisition; jury found both liable in Feb. 2016.
- Payton had previously pled guilty in a parallel criminal case (Nov. 2014) and allocuted that Tom Conradt told him IBM would acquire SPSS at a specific price and that he traded on that info; that plea was vacated (Jan. 2015) after Newman and the criminal prosecution was nolle prossed.
- At civil trial Payton testified in ways that appeared to contradict his plea allocution (e.g., describing the SPSS information as a rumor, uncertain memory of Conradt’s exact statements, and uncertainty about materiality/confidentiality before trading).
- Court excluded the withdrawn plea allocution from impeachment under Fed. R. Evid. 410, but, because of apparent material inconsistencies, conducted an inquiry outside the jury’s presence into possible perjury.
- Payton offered explanations: fading memory, attorney-supplied edits to his allocution (invoking privilege prevented fuller inquiry), and counsel later argued the allocution was equivocal; the court found the first two explanations unpersuasive and the third unlikely to resolve key inconsistencies.
- Balancing factors (jury already found liability; civil penalties available; rarity and chilling risk of referrals; prosecutorial independence and SEC’s ability to refer) the court declined to formally refer Payton to the U.S. Attorney for perjury investigation.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Payton’s trial testimony materially contradicted his prior guilty-plea allocution, supporting a perjury referral | SEC: allocution statements show Payton knew specifics (IBM, SPSS, price, confidentiality) before trading; trial testimony contradicted those facts | Payton: memory lapse, allocution drafted/edited by counsel (notes/Post‑it), allocution ambiguous on timing of understanding confidentiality | Court: found material inconsistencies existed and explanations weak; inquiry warranted but declined formal referral after weighing factors |
| Whether withdrawn guilty-plea allocution could be used to impeach Payton at civil trial | SEC: should be admissible for impeachment or questioning despite Rule 410 | Payton: Rule 410 bars use of withdrawn plea allocution for impeachment | Court: denied SEC’s in limine request—Rule 410 bars impeachment use of withdrawn plea allocution |
| Whether the court could question witness outside jury about suspected perjury | SEC: court empowered/duties justify inquiry; perjury threatens truth-finding | Payton: objected to post‑testimony questioning outside jury (no authority cited) | Court: permitted out-of-jury questioning, citing duty to investigate possible perjury and precedent permitting such inquiries |
| Whether to refer the matter to U.S. Attorney for perjury prosecution | SEC: referral appropriate given apparent perjury and Rule 410 limits on impeachment | Payton: referral inappropriate given equivocal allocution, privilege invocation, and other reasons | Court: refrained from formal referral—left referral to SEC/U.S. Attorney discretion, citing mitigating considerations (jury verdict, penalties, chilling effects, prosecutorial independence) |
Key Cases Cited
- United States v. Williams, 341 U.S. 58 (Sup. Ct.) (perjury undermines course of justice)
- United States v. Norris, 300 U.S. 564 (Sup. Ct.) (perjury is an obstruction of justice)
- United States v. Cornielle, 171 F.3d 748 (2d Cir. 1999) (many untruths occur in civil trials; perjury prosecutions in civil cases are rare)
- United States v. Newman, 773 F.3d 438 (2d Cir. 2014) (requirements regarding personal benefit to tipper and tippee’s knowledge affecting plea sufficiency)
- United States v. Pisani, 773 F.2d 397 (2d Cir. 1985) (trial court not passive in addressing possible perjury)
- United States v. Lawson, 683 F.2d 688 (2d Cir. 1982) (discussing Rule 410 legislative history and admissibility of plea statements)