United States v. McGee
892 F. Supp. 2d 726
E.D. Pa.2012Background
- McGee is charged in a two-count indictment under § 10(b) and Rules 10b-5 and 10b5-2, plus perjury.
- Indictment alleges McGee obtained confidential, nonpublic PHLY information from a PHLY insider during a confidential relationship.
- McGee used the information to purchase PHLY stock and later profit from its sale; he allegedly tipped others.
- The insider and McGee were Alcoholics Anonymous members who shared a close personal relationship and mutual trust.
- Rule 10b5-2 codifies duties of trust or confidence; the government alleges McGee violated these duties by misappropriating information.
- McGee moves to dismiss Count One on grounds of inadequate misappropriation-based relationship pleading and Rule 10b5-2 authority/void-for-vagueness.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the indictment adequately pleads a confidential relationship under misappropriation theory | McGee | McGee | Indictment suffices to allege a trust/confidence relationship under Rule 10b5-2 |
| Validity of Rule 10b5-2 under Chevron deference | Government | McGee | Rule 10b5-2 not arbitrary; valid under Chevron deference |
| Vagueness challenge to Rule 10b5-2 as applied to McGee | McGee | Government | Rule 10b5-2 is clear as applied; not void for vagueness |
| Sufficiency of the indictment under Fed. R. Crim. P. 7 and Resendiz-Ponce standards | McGee | Government | Indictment sufficiently alleges elements, timing, and conduct; adequate notice to defend |
Key Cases Cited
- O’Hagan, 521 U.S. 642 (U.S. 1997) (misappropriation theory approved; relation to fiduciary duty context)
- SEC v. Cuban, 620 F.3d 551 (5th Cir. 2010) (rejected challenge to Rule 10b5-2’s authority to define duties)
- United States v. Dorozhko, 574 F.3d 42 (2d Cir. 2009) (confirms non-traditional duties can trigger misappropriation liability)
- SEC v. Yun, 327 F.3d 1263 (11th Cir. 2003) (confirms duty can arise from agreement or history of confidences)
- National Cable & Telecommunications Ass’n v. Brand X Internet Servs., 545 U.S. 967 (U.S. 2005) (prior judicial construction can be overridden by agency interpretation with Chevron)