913 F.3d 73
2d Cir.2019Background
- Robert Schulman, a Hunton & Williams partner, learned of confidential merger discussions involving client King Pharmaceuticals while representing King in July–August 2010 and was told to keep the information confidential.
- On August 13, 2010, at a dinner/portfolio meeting, Schulman told his friend and discretionary financial adviser Tibor Klein something he described later as "it would be nice to be king for a day."
- Klein promptly contacted others and purchased substantial King securities for himself, for the Schulmans' accounts, and for many clients; another advisor, Michael Shechtman, also purchased King stock/options after speaking with Klein.
- Pfizer announced its acquisition of King on October 12, 2010; the trades generated significant profits for Klein, Shechtman, and the Schulmans.
- Schulman was indicted on conspiracy and securities-fraud counts; he moved for acquittal arguing insufficient evidence of intent that Klein trade on the tip. The jury convicted; the district court denied Rule 29 motions and sentenced Schulman to probation, a fine, forfeiture, and community service.
- The Second Circuit affirmed, holding the circumstantial evidence permitted a rational jury to find Schulman intended Klein to trade (i.e., received a personal benefit or made a gift of confidential information).
Issues
| Issue | Plaintiff's Argument (Schulman) | Defendant's Argument (Government) | Held |
|---|---|---|---|
| Whether evidence was sufficient to prove Schulman intended Klein to trade on inside info | The "king for a day" remark was a boast/joke; Schulman disclosed nothing more and did not expect Klein to trade | Circumstantial evidence (Schulman told his portfolio manager during a portfolio meeting; Klein immediately traded, including in Schulman's account; prior Enzo trades) supports an inference Schulman intended Klein to trade | Affirmed: jury could reasonably infer Schulman intended Klein to trade; conviction upheld |
| Whether personal benefit/gift element for tipper liability was established | No evidence of financial benefit; comment was non-actionable brag | Benefit can be shown by relationship or a gift of confidential information; the jury was instructed on both theories | Affirmed: evidence supported either a personal benefit or a gift to Klein |
| Whether conviction could rest solely on circumstantial evidence without follow-up communications | Lack of subsequent communications shows no intent to direct trading | No requirement of multiple conversations; intent may be proven circumstantially | Affirmed: circumstantial proof sufficed |
| Whether inconsistencies in Schulman’s explanations (Enzo incident) undermine intent inference | Inconsistencies do not prove intent to tip for trading | Inconsistent explanations and prior client-related trades supported inference Schulman expected trading | Affirmed: jury could credit Government’s inferences over Schulman’s testimony |
Key Cases Cited
- United States v. Martoma, 894 F.3d 64 (2d Cir. 2017) (personal benefit requirement for tipper liability; expectations that tippee trade)
- Salman v. United States, 137 S. Ct. 420 (U.S. 2016) (insider trading and tipping liability; tippers may not tip for others to trade)
- United States v. Gansman, 657 F.3d 85 (2d Cir. 2011) (misappropriation theory: tipper must convey material nonpublic information with understanding it will be used for trading)
- United States v. Reifler, 446 F.3d 65 (2d Cir. 2006) (standard for reviewing sufficiency of evidence; credit inferences for the government)
- United States v. Lorenzo, 534 F.3d 153 (2d Cir. 2008) (government may rely solely on circumstantial evidence)
- Jackson v. Virginia, 443 U.S. 307 (U.S. 1979) (conviction must be upheld if any rational trier of fact could find guilt beyond a reasonable doubt)
- United States v. Autuori, 212 F.3d 105 (2d Cir. 2000) (close-calls on reasonable doubt are for the jury)