United States v. Jiau
734 F.3d 147
| 2d Cir. | 2013Background
- From 2006–2008 Winifred Jiau obtained nonpublic quarterly earnings data from two corporate insiders (NVIDIA's Son Ngoc Nguyen and Marvell's Stanley Ng) and passed it to hedge-fund managers (tippees) who traded before public releases.
- Jiau promised tippers access to insider information and participated in an investment club and other gifts; prosecutors alleged these conferred personal benefits on the tippers.
- Barai, a tippee with a hearing impairment, had subordinates listen to, record, or transcribe his calls; some recordings captured conversations with Jiau and were used at trial.
- Jiau moved to suppress those recordings under Title III (wiretap statute), arguing they were unlawful interceptions made to further criminal conduct; the district court denied suppression.
- A jury convicted Jiau of conspiracy (18 U.S.C. § 371) and insider trading (15 U.S.C. § 78j(b), § 78ff, 17 C.F.R. § 240.10b-5, and aiding and abetting), and she was sentenced to 48 months imprisonment (forfeiture order later vacated in part).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Admissibility under Title III of recordings made by Barai’s subordinates | Government: recordings made in ordinary course of business and with consent; thus admissible | Jiau: recordings were unlawful interceptions made to further insider trading and therefore inadmissible | Court: recordings admissible — ordinary-course and party-consent exceptions apply; intent to record for criminal harm was not shown |
| Scope of §2511(2)(d) exception (recordings made for criminal/tortious purposes) | Government: carve-out is narrow; requires intent to use recording to harm recorded party | Jiau: recordings were made to facilitate the insider-trading scheme and therefore fall within the carve-out | Court: carve-out construed narrowly; recording party must intend to use recording to injure or extort; not present here |
| Proof of tippers’ "personal benefit" (Dirks element) | Government: gifts, meals, investment-club relationship, and other transfers show personal benefit | Jiau: tips were given out of pestering, friendship, or loneliness — no quid pro quo or pecuniary benefit | Court: personal benefit standard is broad (pecuniary, reputational, or gift to friend); evidence sufficed to infer benefit for both tippers |
| Sufficiency and materiality of information used for trades | Government: contemporaneous trading by tippees and market reactions show use and materiality | Jiau: alternative sources existed, timing too tight, no directives to traders, and expert needed to show materiality | Court: viewing evidence in government’s favor, jury could find trades were based on Jiau’s tips and information was material; no expert required for materiality |
Key Cases Cited
- Rodriguez v. United States, 356 F.3d 254 (2d Cir.) (standard of review for suppression rulings)
- Bennett v. United States, 663 F.3d 71 (2d Cir. 2011) (deference to district court credibility findings)
- Arias v. Mutual Cent. Alarm Serv., Inc., 202 F.3d 553 (2d Cir. 2000) (ordinary-course-of-business exception to Title III)
- Caro v. Weintraub, 618 F.3d 94 (2d Cir. 2010) (intent-to-harm test under § 2511(2)(d))
- In re DoubleClick Inc. Privacy Litig., 154 F. Supp. 2d 497 (S.D.N.Y. 2001) (legislative history and narrow construction of § 2511(2)(d) carve-out)
- Dirks v. SEC, 463 U.S. 646 (U.S. 1983) (elements of tipping liability and personal-benefit standard)
- SEC v. Obus, 693 F.3d 276 (2d Cir. 2012) (applying Dirks and defining personal benefit scope)
- McTiernan v. City of San Diego, 695 F.3d 882 (9th Cir.) (recorded conversation discussing illegal enterprise not dispositive of § 2511(2)(d) violation)
- Basic Inc. v. Levinson, 485 U.S. 224 (U.S. 1988) (materiality defined as information that would alter the total mix available to investors)