United States v. McGee
955 F. Supp. 2d 466
E.D. Pa.2013Background
- Defendant Timothy McGee was convicted by a jury of securities fraud (misappropriation theory) and perjury for trading PHLY stock after receiving nonpublic information about a pending sale at ~3× book value.
- Government's theory: an insider, with whom McGee had an AA-based relationship, disclosed the merger information during a sobriety-related conversation; McGee traded and made large purchases including a leveraged loan.
- McGee argued at trial and post-trial that his AA relationship with the insider was purely social/sobriety-related and did not create a duty of trust or confidence under the misappropriation theory and SEC Rule 10b5-2.
- For the perjury count, McGee denied under oath to the SEC that he had received information suggesting a sale; the government relied on the insider’s testimony plus corroborating trade records.
- McGee moved for judgment of acquittal and alternatively a new trial based on deposition testimony obtained after trial (from an AA sponsor and others) that he claimed undermined confidentiality and the insider’s role in the merger.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Sufficiency of evidence that McGee owed a duty of trust/confidence for securities fraud | The insider disclosed material nonpublic information in the context of an AA-based confidential relationship; Rule 10b5-2(b)(2) covers a history/pattern of sharing confidences | Relationship was only AA social contact; no business relationship or express confidentiality agreement; information about merger was business, not within expected confidences | Evidence was sufficient: jury could find a history/pattern of sharing confidences in AA and that the merger disclosure occurred within that confidential context; acquittal denied |
| Applicability of Rule 10b5-2 standard | SEC Rule 10b5-2’s categories (agreement/history/pattern) properly define duties for misappropriation liability | Rule overbroad as applied to AA relationship (argued earlier) | Court previously upheld Rule 10b5-2 as valid; applied here without revisiting that holding |
| Sufficiency of evidence for perjury (two-witness rule) | Insider’s testimony plus independent corroboration (trade records, timing, leveraged loan, pattern of purchases) satisfy the requirement | Conviction rests solely on insider’s testimony and is barred by the two-witness rule | Held that trade records and other non-testimonial evidence independently corroborated the insider’s testimony; perjury conviction upheld |
| Motion for new trial based on post-trial depositions (newly discovered evidence) | New deposition testimony undermines confidentiality expectation and insider’s role in the merger, likely producing acquittal | Testimony is cumulative, impeaching, or peripheral; could have been discovered earlier; does not materially change proof | Motion denied: new evidence was not sufficiently new, material, or likely to produce acquittal; did not meet Adams factors |
Key Cases Cited
- United States v. O'Hagan, 521 U.S. 642 (misappropriation theory supports liability when outsider breaches duty of loyalty/confidence)
- Weiler v. United States, 323 U.S. 606 (perjury conviction generally requires two-witness rule or equivalent corroboration)
- United States v. Neff, 212 F.2d 297 (single witness plus independent corroborating evidence can satisfy two-witness rule)
- United States v. Rajaratnam, 719 F.3d 139 (discussing Rule 10b5-2 and duties arising from sharing confidences)
- SEC v. Yun, 327 F.3d 1263 (duty of confidentiality can arise from access to confidential information and reasonable reliance)
- United States v. Falcone, 257 F.3d 226 (explicit acceptance of confidentiality can create fiduciary-like duty)