638 F. App'x 56
2d Cir.2016Background
- David Riley, Foundry CIO, convicted after jury trial of three counts of tipping insider information (securities fraud) and sentenced to concurrent 78-month terms (below Guidelines).
- Government's theory: Riley accessed Foundry’s confidential worldwide sales database (BBB/FBOL), communicated material nonpublic information to tippee Matthew Teeple, who passed it to traders who profited.
- Trial evidence included Riley’s FBOL/BBB logins (some during calls with Teeple), his inclusion on a privileged Brocade-Foundry distribution list, post-meeting trading by Teeple’s contacts, and Riley’s admission he “may have” leaked deal information.
- Riley defended by disputing his access to BBB, the materiality/confidentiality of the information, knowledge that Teeple would trade, the required personal-benefit quid pro quo, venue, several evidentiary rulings, and Guidelines calculations.
- District court admitted contested recordings and limited certain defense character and public-document evidence; court calculated gain under U.S.S.G. § 2B1.4 based on trading by Teeple’s hedge fund (Artis).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Sufficiency: access to and communication of material nonpublic info | Evidence (logins, role as CIO, privileged distribution, timing, Riley’s stated admission) shows access and transmission | Riley: others likely sources; no proof he had full access or communicated confidential info | Affirmed — circumstantial evidence sufficient to infer access and communication |
| Sufficiency: anticipation of trading by tippee | Government: Riley knew Teeple worked with fund managers and timing/nature of communications supported culpable knowledge | Riley: no proof he knew Teeple would trade on tips | Affirmed — email and contextual evidence supported reasonable inference of anticipation |
| Sufficiency: personal benefit requirement | Government: Riley received immediate pecuniary benefit (investment advice and profitable trades), satisfying quid pro quo | Riley: under Newman personal benefit must be a meaningfully close relationship or similar; no proof of such benefit here | Affirmed — jury could reasonably find tangible, immediate benefit; Newman did not preclude finding of pecuniary benefit here |
| Jury instruction on personal benefit & motive | Government: district instruction adequate; evidence of pecuniary benefit was compelling | Riley: instruction pre-Newman was erroneous; asking jury whether motive required was misleading | Affirmed — even if instruction erred, plain-error standard not met because any error did not affect substantial rights |
| Evidentiary rulings (recording, character testimony, excluded exhibits) | Government: recordings/statements were in furtherance of the conspiracy; limits on character/some public exhibits proper | Riley: admission of June 2009 call improper; character testimony unduly restricted; public exhibits wrongly excluded | Affirmed — district court did not abuse discretion in admitting recording, limiting character testimony, or excluding irrelevant public materials |
| Sentencing Guidelines calculation (gain) | Government: gain includes value realized through trading by persons who received inside info (Artis trading included); gain need not await liquidation | Riley: Artis trading shouldn’t be included; gain only when tippee liquidates position | Affirmed — district court properly included Artis trading under §2B1.4 background; gain measured by market effect, not tippee liquidation |
Key Cases Cited
- SEC v. Obus, 693 F.3d 276 (2d Cir.) (elements of tipper liability)
- United States v. Newman, 773 F.3d 438 (2d Cir.) (personal-benefit standard in tipper cases)
- Dirks v. SEC, 463 U.S. 646 (Sup. Ct.) (insider trading duty/breach framework)
- United States v. Contorinis, 692 F.3d 136 (2d Cir.) (materiality standard for insider information)
- United States v. Lorenzo, 534 F.3d 153 (2d Cir.) (circumstantial evidence may establish access and transmission)
- United States v. Royer, 549 F.3d 886 (2d Cir.) (venue and Guidelines gain discussion)
- United States v. Cavera, 550 F.3d 180 (2d Cir.) (sentencing-review standards)