943 F.3d 499
1st Cir.2019Background
- Kanodia married Apollo Tyres chief legal officer Shahana Basu; Basu led Apollo's negotiations to acquire Cooper Tires and was subject to Apollo's confidentiality policies.
- While Basu was in New York for due diligence in April–May 2013, she disclosed her role (but not necessarily deal price/timing) to acquaintances in Kanodia's presence; Kanodia stayed with her in her Waldorf suite.
- Kanodia told two friends, Ifthikar Ahmed and Steven Watson, that Apollo would buy Cooper for $35/share and about the announcement timing; both traded in Cooper securities (including short‑dated call options) and realized substantial profits.
- Ahmed and Watson wired money (totaling $242,500) into a Lincoln Charitable Foundation account controlled by Kanodia as disguised kickbacks; Watson later cooperated and pleaded guilty; Basu did not testify.
- Kanodia was convicted at trial under the misappropriation theory of insider trading for tipping outsiders who owed a duty to Basu, and was sentenced to 20 months; he appealed convictions, several jury instructions, and the denial of a Rule 33 new‑trial motion based on purportedly newly discovered Indian press reports and witnesses.
Issues
| Issue | Plaintiff's Argument (Kanodia) | Defendant's Argument (Gov't) | Held |
|---|---|---|---|
| Sufficiency: duty of trust/confidence | No prior history/pattern of sharing confidences with Basu; marital status alone insufficient | Evidence of close marital, business and advisory relationship, access to confidential papers, and prior sharing established duty | Affirmed: jury could infer a history/pattern of sharing confidences and thus a duty owed to Basu |
| Sufficiency: willful breach | Lacked proof Kanodia knew conduct unlawful | Circumstantial evidence and concealment (avoiding written comms, urging kickbacks to LCF, telling others he could not trade) show willfulness/wilful blindness | Affirmed: evidence supports inference of willful breach; any willful‑blindness instruction error harmless |
| Jury instructions (willful blindness; "on the basis of" possession vs use; waiver; deception) | Instruction lacked evidentiary basis; government must prove tippees actually used info; court should have instructed on waiver/deception | Evidence supported willful blindness instruction; tippees used tips; any instruction error was harmless; insider cannot ‘‘waive’’ duty as a required element | Affirmed: instructions proper or any errors harmless; government proved use and breach sufficed as deceptive device |
| New trial (Rule 33: newly discovered evidence) | Newly discovered Indian media reports and five witnesses would show price/timing were public and undermine materiality/possession | Reports/witnesses could have been found with due diligence; affidavits were cumulative, vague, or unsourced and unlikely to produce acquittal | Affirmed: district court did not abuse discretion — lack of diligence and lack of materiality/cumulativeness supported denial |
Key Cases Cited
- Salman v. United States, 137 S. Ct. 420 (2016) (misappropriation/tipper‑tippee liability requires personal benefit and duty framework)
- United States v. O'Hagan, 521 U.S. 642 (1997) (misappropriation theory: breach of a duty to the source is the deceptive device under §10(b))
- Basic Inc. v. Levinson, 485 U.S. 224 (1988) (materiality in merger contexts; certainty/timing affect materiality)
- United States v. Parigian, 824 F.3d 5 (1st Cir. 2016) (history/pattern/practice of sharing confidences can create an outsider's duty)
- United States v. McPhail, 831 F.3d 1 (1st Cir. 2016) (affirming sufficiency where long‑standing personal/business relationship supported duty)
- United States v. McDonough, 727 F.3d 143 (1st Cir. 2013) (standards for reviewing jury instructions)
- United States v. Maldonado‑Rivera, 489 F.3d 60 (1st Cir. 2007) (standards for Rule 33 new‑trial based on newly discovered evidence)
- Halliburton Co. v. Erica P. John Fund, Inc., 573 U.S. 258 (2014) (market efficiency and how public information is reflected in stock prices)