947 F.3d 19
2d Cir.2019Background
- Four defendants (consultant David Blaszczak; hedge-fund employees Theodore Huber, Robert Olan; CMS employee Christopher Worrall) were charged with schemes to trade on confidential, predecisional Centers for Medicare & Medicaid Services (CMS) information disclosed to hedge-fund clients.
- Government’s theory: Worrall and other CMS insiders leaked nonpublic rulemaking information to Blaszczak, who tipped Deerfield and Visium portfolio managers; the funds traded (shorts/puts) and realized millions in profits.
- Superseding indictment charged wire fraud (18 U.S.C. § 1343), Title 18 securities fraud (18 U.S.C. § 1348), conversion of U.S. property (18 U.S.C. § 641), Title 15 securities fraud (exchange-act § 10(b)/Rule 10b-5), and conspiracies.
- Jury acquitted on all Title 15 (Dirks) counts but convicted on wire fraud, conversion, Title 18 securities fraud (except Worrall), and conspiracy counts; district court sentenced defendants and they appealed.
- On appeal the Second Circuit held (majority) that confidential government predecisional rulemaking information may be “property” under §§ 1343/1348, the Dirks personal-benefit test does not apply to Title 18 fraud statutes, and the evidence supported the convictions.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether confidential predecisional CMS information is “property” under 18 U.S.C. §§ 1343 & 1348 | Gov't: CMS has a right to exclude and an economic/regulatory interest; confidential information is "something of value" and thus property | Defs: Cleveland v. United States bars treating governmental regulatory interests as property; CMS confidentiality is a sovereign/regulatory interest, not property | Court: Carpenter controls; confidential predecisional info may be government "property"; sufficient evidence here that CMS information was property |
| Whether Dirks personal-benefit test applies to Title 18 fraud statutes | Gov't: Dirks is a securities-law doctrine limited to Title 15; Title 18 statutes have different purposes and broader scope | Defs: Dirks should apply to Title 18 to require proof of insider personal benefit and limit prosecutions | Court: Dirks is judge-made for Exchange Act purposes and does not apply to wire fraud or § 1348; no personal-benefit requirement for Title 18 fraud counts |
| Conversion (§ 641): is confidential info a “thing of value,” was there “serious interference,” scienter, and is statute vague as applied | Gov't: info is intangible property/thing of value; disclosure completes interference with right to exclude; evidence shows knowledge and intent; not unconstitutionally vague here | Defs: info isn’t a thing of value to CMS; no monetary loss or serious interference; vagueness because no explicit rule proscribed disclosure; insufficient scienter | Court: Intangibles can be "thing of value" (Girard precedent); serious interference can occur on unauthorized disclosure; scienter and as-applied vagueness challenges fail on facts; conscious-avoidance instruction proper |
| Sufficiency of evidence that defendants received/used unlawfully disclosed CMS information (including role of Worrall and Blaszczak’s sources) | Gov't: circumstantial and direct evidence (meetings, emails, cooperating witness testimony) sufficed to show misappropriation and trading on leaks | Defs: alternative lawful sources or public bases for predictions; government failed to prove Worrall was source or that info was nonpublic | Court: viewing evidence in gov't favor, record supports convictions; jury reasonably credited cooperating witnesses and circumstantial proof |
| Misjoinder (Rule 8) of Visium counts with Deerfield scheme | Gov't: schemes overlapped temporally, involved similar conduct and the same central actor (Blaszczak); joinder efficient | Defs: Visium counts were distinct and prejudicial; should have been severed | Court: joinder proper under Rule 8(b); even if error, any misjoinder was harmless because much Visium evidence was admissible against other defendants |
| District court evidentiary rulings (limits on cross-exam, coconspirator statements, business records) | Gov't: rulings within discretion; evidence admissible and not unduly prejudicial | Defs: rulings deprived defendants of key impeachment and exculpatory evidence, warranting new trial | Court: rulings were within district court discretion and any trial errors were not prejudicial to warrant reversal |
Key Cases Cited
- Carpenter v. United States, 484 U.S. 19 (1987) (prepublication confidential information can be property under mail/wire fraud)
- Cleveland v. United States, 531 U.S. 12 (2000) (state’s regulatory interest in unissued licenses not "property" for mail fraud)
- Dirks v. SEC, 463 U.S. 646 (1983) (insider tipping requires personal-benefit showing under Exchange Act)
- O'Hagan v. United States, 521 U.S. 642 (1997) (misappropriation theory of securities fraud)
- United States v. Girard, 601 F.2d 69 (2d Cir. 1979) (government has property interest in certain confidential records; intangibles may be "thing of value")
- Morissette v. United States, 342 U.S. 246 (1952) (conversion extends to misuse or abuse of government property)
- Pasquantino v. United States, 544 U.S. 349 (2005) (Cleveland limited to its facts; does not control cases involving confidential government information)