352 F. Supp. 3d 287
S.D. Ill.2018Background
- Defendants Sebastian Pinto-Thomaz (tipper) and Jeremy Millul (tippee) are charged in a superseding indictment with securities fraud and conspiracy for allegedly misappropriating and trading on nonpublic information about Sherwin‑Williams’ acquisition of Valspar.
- Indictment alleges Pinto‑Thomaz obtained material nonpublic information in a fiduciary capacity, provided it to Millul intending to benefit him, and Millul traded profitably before the public announcement.
- Defendants moved to dismiss, arguing the indictment fails to allege a "meaningfully close personal relationship" (per United States v. Newman) and thus does not plead the required personal benefit for tipping liability.
- Defendants also moved for a bill of particulars (seeking specifics about the disclosed information and identities of unindicted co‑conspirators), and moved to suppress evidence from three warrants (Millul Gmail, Pinto‑Thomaz iCloud, Millul iPhone) on probable cause, particularity, overbreadth, and execution (including alleged invocation of right to counsel and passcode/FaceID issues).
- Court denied the dismissal motions, granted a limited bill of particulars ordering identification of any known unindicted co‑conspirators, denied suppression as to the Gmail warrant, ordered suppression hearings on execution/overbreadth issues for the Pinto‑Thomaz iCloud warrant and whether Millul invoked counsel before being asked for his iPhone passcode, and denied return of Pinto‑Thomaz’s seized phone under Rule 41.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| 1. Sufficiency re: "personal benefit" / Newman requirement | Government: indictment alleges Pinto‑Thomaz intended to benefit Millul; Dirks permits inferring personal benefit from intent to benefit recipient | Defendants: Newman requires a "meaningfully close personal relationship" (and pecuniary‑type benefit) that indictment fails to allege | Denied dismissal — Dirks + Martoma II permit inferring personal benefit from an intent to benefit the recipient; Newman’s narrow relationship rule does not bar prosecution here |
| 2. Bill of particulars — specificity of disclosed information and co‑conspirators | Gov: Indictment and discovery (including seized materials) sufficiently describe the information; disclosure of prosecution theory is not required | Defendants: need details of what nonpublic information was conveyed and identities of unindicted co‑conspirators to prepare defense | Ordered limited bill: Government must identify any known unindicted co‑conspirators; otherwise request denied as discovery and indictment are adequate |
| 3. Validity of electronic search warrants (probable cause, particularity, overbreadth) | Gov: affidavits show nexus between accounts/devices and alleged trades; categories tied to Valspar/Sherwin‑Williams matter; temporal limits not strictly required | Defendants: warrants lack adequate particularity/temporal limits and are overbroad (catch‑all categories, relationship queries) | Warrants upheld as supported by probable cause and sufficiently particular given context; magistrates’ approvals and scope tied to charged conduct weigh against suppression |
| 4. Execution issues — agents’ conduct, invocation of counsel, passcode/FaceID and Rule 41 return | Gov: limited inadvertent nonresponsive seizures were excluded from evidence; passcode/FaceID used consistent with warrant; retention reasonable given encryption difficulties | Defendants: agents seized nonresponsive items, may have acted in flagrant disregard; Millul invoked counsel before being asked for passcode (Edwards issue); Pinto‑Thomaz phone held unreasonably long | Court found some nonresponsive items and ordered suppression hearings: (a) hearing on whether agents flagrantly disregarded Pinto‑Thomaz iCloud warrant; (b) hearing on whether Millul invoked counsel prior to passcode request (Edwards); denied return of Pinto‑Thomaz phone under Rule 41 given ongoing need and encryption delay |
Key Cases Cited
- O'Hagan v. United States, 521 U.S. 642 (superseding misappropriation theory for insider trading)
- Dirks v. SEC, 463 U.S. 646 (personal benefit/intent‑to‑benefit test for tipping liability)
- Chiarella v. United States, 445 U.S. 222 (limits of classical insider‑trading theory)
- United States v. Newman, 773 F.3d 438 (2d Cir.) (held tippee knowledge and close‑relationship/pecuniary language later narrowed by Salman/Martoma)
- Salman v. United States, 137 S. Ct. 420 (Supreme Court) (rejected Newman's pecuniary‑only benefit rule)
- United States v. Martoma, 894 F.3d 64 (2d Cir.) (panel clarified Newman’s relationship requirement is narrowly applied; intent to benefit suffices)
- United States v. Galpin, 720 F.3d 436 (2d Cir.) (warrant particularity and digital search sensitivity)
- United States v. Patane, 542 U.S. 630 (plurality) (distinguishing suppression of physical fruits of unwarned voluntary statements)
- Bouie v. City of Columbia, 378 U.S. 347 (due process limits on retroactive judicial construction of criminal law)
- United States v. Ganias, 755 F.3d 125 (2d Cir.) (reasonableness of retention/review period for electronic evidence)