United States v. Tinghui Xie, 942 F.3d 228

Background:

In spring–summer 2012 CB&I pursued acquisition of The Shaw Group; final agreement announced July 30, 2012.
Kelly Liu worked in Shaw’s Financial Planning & Analysis (FP&A) group and had access to due diligence materials, participated in atypical updates to the firm’s valuation model (“Maggie”), and took calls with Morgan Stanley bankers about EBITDA.
From July 18–27, 2012 Liu, her boyfriend Salvador Russo, neighbor Diemo Ho, and Vic Ho exchanged a high volume of calls/texts timed with trades; an IP address Liu regularly used accessed Vic’s brokerage account.
Vic bought Shaw call options and sold them on July 30 for roughly $294,000; Russo (through his mother’s account) bought Shaw stock and realized modest profit; other testimony indicated Liu allegedly admitted passing along the tip.
Liu was indicted, convicted of one count of conspiracy (18 U.S.C. § 371) and two counts of securities fraud (15 U.S.C. § 78j(b), 78ff), denied severance, sentenced to 16 months concurrent, and appealed arguing insufficiency of the evidence and abuse of discretion in denying severance.

Issues:

Issue	Plaintiff's Argument	Defendant's Argument	Held
Sufficiency of evidence for insider trading (possession/materiality/disclosure/scienter)	Govt: Liu had actual knowledge from due diligence materials, out-of-cycle model updates, insider communications, and admitted disclosures; phone logs, IP access, and trading pattern supported disclosure and scienter.	Liu: At most had potential access or rumor-based information; no proof she possessed or disclosed material nonpublic information or had intent to defraud.	Affirmed. Jury could rationally find possession, materiality, disclosure, and scienter on the presented circumstantial and testimonial evidence.
Conspiracy to commit securities fraud	Govt: Agreement inferred from concerted communications, voluntary participation, and overt acts (trades and coordinated communications).	Liu: Communications could have occurred absent a criminal agreement; no affirmative proof of intentional agreement.	Affirmed. Evidence supported inference of agreement, knowledge, and overt acts.
Severance (Rule 14)	Govt: Joint trial appropriate; limiting instructions mitigate spillover prejudice and federal preference favors joint trials.	Liu: Prejudice from evidence against codefendants (e.g., Vic’s tax issues, out-of-court statements) required separate trial.	Affirmed. District court did not abuse discretion; jury instructions provided adequate protection and spillover alone was insufficient.
Personal benefit element for tipper liability	Govt: Close personal relationship with Russo/Diemo supports inference of a personal benefit to Liu for tipping.	Liu: (largely conceded the relationship) contested sufficiency of other elements, but argued no actionable benefit beyond friendship.	Affirmed. The close relationship supports an inference of personal benefit under controlling precedents.

Key Cases Cited

Dirks v. S.E.C., 463 U.S. 646 (1983) (framework for tipper/tippee liability and personal benefit requirement)
Salman v. United States, 137 S. Ct. 420 (2016) (affirming Dirks principles for insider-tip liability)
United States v. O’Hagan, 521 U.S. 642 (1997) (misappropriation theory and fraud-based requirements)
TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438 (1976) (materiality standard: alters the total mix of information)
Basic Inc. v. Levinson, 485 U.S. 224 (1988) (adopts TSC standard in §10(b) context)
Jackson v. Virginia, 443 U.S. 307 (1979) (standard for sufficiency review: any rational trier of fact could find guilt beyond a reasonable doubt)
Zafiro v. United States, 506 U.S. 534 (1993) (Rule 14 severance principles and preference for limiting instructions)
United States v. Mylett, 97 F.3d 663 (2d Cir. 1996) (insider confirmation of merger rumors can be material)
S.E.C. v. Mayhew, 121 F.3d 44 (2d Cir. 1997) (lesser specificity required where merger discussions are actual and serious)
Taylor v. First Union Corp., 857 F.2d 240 (4th Cir. 1988) (distinguishing preliminary, speculative talks from material information)