UNITED STATES of America v. Timothy McGEE, Appellant.
No. 13-3183.
United States Court of Appeals, Third Circuit.
Argued Feb. 12, 2014. Filed: Aug. 14, 2014.
763 F.3d 304
On remand, the District Court is to consider, in the first instance, upon applying the appropriate burden of proof, whether to award VICI the additional $7 million or a lesser sum based on a proper measure of expectation damages, including the deduction of actual costs avoided. See Savarese v. Agriss, 883 F.2d 1194, 1210 (3d Cir.1989) (vacating a damages award based on erroneous application of Pennsylvania law). The Court shall not consider any evidence or argument that VICI failed to mitigate damages, in view of our holding that T-Mobile waived this issue.
IX. Conclusion
The District Court‘s award of $7 million is affirmed. Its decision regarding VICI‘s damages resulting from T-Mobile‘s failure to make the 2011 payment is vacated. The case is hereby remanded to reconsider the 2011 damages issue in light of this opinion. On remand, the District Court should also consider the proper award of attorney‘s fees to VICI in light of its reassessment of the 2011 damages issue. Should there be any further appeals in this matter, they should be referred to this panel.
Jay M. Feinschil, Esq., Philadelphia, PA, Counsel for Amicus Appellant.
Zane D. Memeger, Esq., Frank R. Costello, Jr., Esq., Bernadette A. McKeon, Esq., (Argued), Office of United States Attorney, Philadelphia, PA, Counsel for Appellee.
Before: CHAGARES, SHWARTZ and ALDISERT, Circuit Judges.
OPINION OF THE COURT
ALDISERT, Circuit Judge.
Timothy McGee appeals his convictions for (1) securities fraud under the misappropriation theory of insider trading pursuant to
I.
Between June and July 2008, McGee obtained material nonpublic information about the impending sale of Philadelphia Consolidated Holding Corporation (“PHLY“), a publicly traded company, from Christopher Maguire, a PHLY insider. Before this information became public, McGee borrowed approximately $226,000 at 6.875% interest to partially finance the purchase of 10,750 PHLY shares. Shortly after the public announcement of PHLY‘s sale, McGee sold his shares, resulting in a $292,128 profit.
A financial advisor with more than twenty years of experience, McGee first met Maguire between 1999 and 2001 while attending Alcoholics Anonymous (“AA“) meetings. AA is a fellowship of recovering alcoholics who share a desire to stop drinking. AA members are encouraged to seek support from other members in their efforts to stay sober. As a newcomer to AA, Maguire sought support from McGee, who shared similar interests and had successfully achieved sobriety for many years.
In early 2008, Maguire was closely involved in negotiations to sell PHLY. During this time, Maguire experienced sporadic alcohol relapses, culminating in a drinking episode a week or two after June 21-22, 2008 at a weekend golf event. Shortly after the golf event, Maguire recommenced his regular AA attendance. McGee saw Maguire after a meeting and inquired about his frequent absences. In response, Maguire “blurted out” the inside information about PHLY‘s imminent sale. J.A. 133. He told McGee, “Listen, we‘re selling the company.... for three times book [value]. We are selling it for 61.50.[T]here‘s a lot of pressure. There‘s just a lot of things going on, and I‘m not dealing with it well.” J.A. 133. He testified that he expected McGee to keep this information confidential. At the time, the sale had not been publicly announced and Maguire “had not said a word to anybody.” J.A. 135. He believed he could trust McGee with the information given their long history of sharing confidences related to sobriety.
After this conversation, McGee purchased a substantial amount of PHLY stock on borrowed funds without disclosing to Maguire his intent to use the inside information:
On June 30, 2008, PHLY stock represented one-tenth of McGee‘s stock portfolio. Less than a month later, it constituted 60% of his holdings. In the interim period, McGee made the following purchases: July 15, 2008, 1,000 shares at $33 per share; July 17, 2008, 8,250 shares at $33 per share; July 18, 2008, 1,000 shares at $34 per share; and July 22, 2008, 500 shares at $35 per share. On July 23, 2008, after the announcement of the sale, the stock price rose to $58 per share.... To finance his purchase of the 8,250 shares on July 17, 2008, he borrowed approximately $226,000, at 6.875% interest.
United States v. McGee, 955 F.Supp.2d 466, 472 (E.D.Pa.2013) (footnotes omitted).
Shortly after the sale was publicly announced, the SEC commenced an investigation into McGee‘s unusually high volume of trades in PHLY stock. On September 16, 2009, McGee gave sworn testimony before the SEC stating that he “knew nothing” about the impending sale of PHLY before he purchased the stock in July 2008. J.A. 53–54, 1630-1633. On May 10, 2012, a grand jury returned a two-count indictment charging McGee with (1) securities fraud under the misappropriation theory of insider trading in violation of
On November 15, 2012, a jury found McGee guilty of both counts. As to the securities fraud count, the jury found that his trades violated a relationship of trust or confidence with Maguire based on their “history, pattern, or practice of sharing confidences” pursuant to
McGee renews his arguments on appeal, first contending that
II.
A.
To determine whether
It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce or of the mails, or of any facility of any national securities exchange-
...
(b) [t]o use or employ, in connection with the purchase or sale of any security ... any manipulative or deceptive device or contrivance in contravention of such rules and regulations as the [SEC] may prescribe as necessary or appropriate in the public interest or for the protection of investors.
Traditional insider trading occurs “when a corporate insider trades in the securities of his corporation on the basis of material, nonpublic information.” United States v. O‘Hagan, 521 U.S. 642, 651-652, 117 S.Ct. 2199, 138 L.Ed.2d 724 (1997). Such trading constitutes a deceptive device under
In contrast, misappropriation focuses on deceptive trading by outsiders who owe no duty to shareholders. It occurs when a person “misappropriates confidential information for securities trading purposes, in breach of a duty [to disclose] owed to the source of the information.” O‘Hagan, 521 U.S. at 652 (emphasis added). If the trader discloses to the source his intent to trade, there is no deception and no
Deception through nondisclosure, therefore, is the crux of insider trading liability. Id. at 654. In two seminal traditional insider trading cases, the Supreme Court rejected what is known as the parity-of-information rule, which would impose “a general duty between all participants in market transactions to forgo actions based on material, nonpublic information.” Chiarella, 445 U.S. at 233; see also Dirks v. SEC, 463 U.S. 646, 657, 103 S.Ct. 3255, 77 L.Ed.2d 911 (1983).3 These cases emphasized that a duty to disclose is premised on “a specific relationship between two parties” rather than on the mere possession of inside information. Chiarella, 445 U.S. at 233; Dirks, 463 U.S. at 657-658. Accordingly, under either theory, “there can be no fraud absent a duty to speak,” and the duty to speak arises from a “relationship of trust and confidence.” Chiarella, 445 U.S. at 230, 235.
The Supreme Court has provided limited guidance on which relationships between a trader and his source give rise to a duty to disclose for misappropriation. In O‘Hagan, the Court suggested that only “recognized dut[ies]” will suffice. Id. at 666. However, the Court did not otherwise limit or define the contours of such relationships. See id. at 652-655; SEC v. Cuban, 620 F.3d 551, 555 (5th Cir.2010). Accordingly, after O‘Hagan, it remained unclear which nonfiduciary relationships carried a duty to disclose to the source. SEC v. Yun, 327 F.3d 1263, 1271 (11th Cir.2003). Prompted by inconsistent treatment among lower courts,4 the SEC promulgat-
[A] “duty of trust or confidence” exists in the following circumstances, among others:
(1) Whenever a person agrees to maintain information in confidence;
(2) Whenever the person communicating the material nonpublic information and the person to whom it is communicated have a history, pattern, or practice of sharing confidences, such that the recipient of the information knows or reasonably should know that the person communicating the material nonpublic information expects that the recipient will maintain its confidentiality; or
(3) Whenever a person receives or obtains material nonpublic information from his or her spouse, parent, child, or sibling; provided, however, that the person receiving or obtaining the information may demonstrate that no duty of trust or confidence existed with respect to the information....
Because McGee‘s conviction stems only from subsection (b)(2), we will discuss solely that portion of the rule. As a matter of first impression, we decide whether
B.
We exercise plenary review over the District Court‘s legal conclusions. United States v. Huet, 665 F.3d 588, 594 (3d Cir.2012). We review the validity of
The Supreme Court has clarified that a “prior judicial construction of a statute trumps [a later] agency construction otherwise entitled to Chevron deference only if the prior court decision holds that its construction follows from the unambiguous terms of the statute and thus leaves no room for agency discretion.” Nat‘l Cable & Telecomms. Ass‘n v. Brand X Internet Servs., 545 U.S. 967, 982, 125 S.Ct. 2688, 162 L.Ed.2d 820 (2005). We thereby “hold judicial interpretations contained in precedents to the same demanding Chevron step one standard that applies if the court is reviewing the agency‘s construction on a blank slate.” Id.
McGee argues that we are foreclosed from applying the teachings of Chevron to
1.
At Chevron step one, we decide that
Having identified the gap in
First, we reject McGee‘s contention that
Contrary to McGee‘s contention, Supreme Court precedent does not unequivocally require a fiduciary duty for all
The Supreme Court‘s traditional insider trading precedent does not change this result. Chiarella and Dirks call for a “specific relationship between two parties.” Chiarella, 445 U.S. at 233; Dirks, 463 U.S. at 657-658. Although these cases often referred to fiduciaries, they spoke also in broader terms. See Dirks, 463 U.S. at 654 (explaining that for traditional insider trading, there is no duty to disclose if the trader is not an agent, a fiduciary, or “a person in whom the sellers [of the securities] had placed their trust and confidence” (quoting Chiarella, 445 U.S. at 232)). Even assuming arguen-do that Chiarella and Dirks require a strict fiduciary duty for traditional insider trading, neither case considered the misappropriation theory. In O‘Hagan, the Court examined these cases and opted to extend misappropriation beyond solely fiduciaries. 521 U.S. at 645, 666. We decline to infer from Chiarella and Dirks a restriction on misappropriation that the O‘Hagan Court did not itself recognize.
We join our sister circuits in recognizing that the Supreme Court “did not set the contours of a relationship of ‘trust and confidence’ giving rise to the duty to disclose or abstain and misappropriation liability.” Cuban, 620 F.3d at 555; see also Yun, 327 F.3d at 1271 (acknowledging that after O‘Hagan and before
Moreover, even if the rule were to conflict with the Court‘s interpretation of deceptive devices, the Court “did not purport to adopt or apply the unambiguous meaning” of § 10. See Swallows Holding, Ltd. v. Comm‘r, 515 F.3d 162, 170 n. 11 (3d Cir.2008); Brand X, 545 U.S. at 982 (holding that to foreclose a conflicting agency interpretation, a “prior court decision [must hold] that its construction follows from the unambiguous terms of the statute“). Indeed, the Supreme Court has recognized that the text of
2.
“Under step two of the Chevron framework, we consider whether the [SEC‘s] interpretation is reasonable in light of the language, policies, and legislative history” of
Here, Congress implemented the Exchange Act “to insure the maintenance of fair and honest markets in [securities] transactions.”
We agree with the analysis in United States v. Corbin, 729 F.Supp.2d 607, 619 (S.D.N.Y.2010), which held that the SEC‘s broader approach was reasonable and “buttressed by a thorough and careful consideration ... of the ends of
We believe that
C.
We hold that
III.
McGee argues also that the District Court erred by denying his motion for a judgment of acquittal or a new trial because insufficient evidence supports his convictions for securities fraud and perjury. Our review of the sufficiency of the evidence is “highly deferential.” United States v. Caraballo-Rodriguez, 726 F.3d 418, 430 (3d Cir.2013) (en banc). The verdict must be upheld if “after viewing the evidence in the light most favorable to the prosecution, any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt.” Jackson, 443 U.S. at 319 (emphasis in original).
A.
McGee first challenges his securities fraud conviction. He argues that no rational trier of fact could have found that (1) McGee and Maguire had the requisite relationship of trust or confidence for misappropriation liability, or (2) the inside information was disclosed within the scope of such a relationship. But McGee cannot overcome the “highly deferential” standard of review for sufficiency of the evidence. Caraballo-Rodriguez, 726 F.3d at 430.
A person is liable for misappropriation when he “misappropriates confidential information for securities trading purposes, in breach of a duty owed to the source of the information.” O‘Hagan, 521 U.S. at
We reject McGee‘s argument that he did not share a relationship of trust or confidence with Maguire. McGee contends that membership in AA alone does not generate a duty of trust or confidence and his relationship with Maguire did not bear the hallmark indicators of a confidential relationship. McGee characterizes their relationship as purely social, limited to “occasional bike rides and sporadic AA meetings.” Appellant‘s Br. at 31, 35. He argues this social affiliation is insufficient to impose a duty to disclose under
Even assuming there is no expectation of confidentiality generally in AA,11 the plain language of
We reject also McGee‘s argument that the inside information about PHLY‘s sale exceeded the scope of any confidential relationship related to sobriety. Shortly following Maguire‘s relapse, McGee saw him at an AA meeting. After the meeting, McGee asked Maguire about his inconsistent AA attendance. In response, Maguire told McGee, his confidant, that the impending sale of PHLY was a source of
Ultimately, we agree with the District Court, which held that “[t]here was sufficient evidence from which a rational fact finder could have found that a confidential relationship existed and the inside information was disclosed within the confines of that relationship.” McGee, 955 F.Supp.2d at 470. Accordingly, we will affirm McGee‘s conviction for securities fraud.
B.
McGee next challenges his perjury conviction under
1.
A perjury conviction under
At trial, the Government offered McGee‘s high-volume trading in PHLY stock to corroborate Maguire‘s testimony that he told McGee about PHLY‘s sale before it was publicly announced. McGee contends that his trading records are not sufficient corroborative evidence. McGee points to United States v. Chestman, in which the Court of Appeals for the Second Circuit reversed a perjury conviction because the evidence of trading was not inconsistent with the defendant‘s “position that he researched the company, assumed it was a takeover target, and invested accordingly.” 903 F.2d 75, 82 (2d Cir.1990), rev‘d on other grounds en banc, 947 F.2d 551 (2d Cir.1991). McGee argues that, like the defendant in Chestman, his trading records are insufficient corroborative evidence because there are other explanations for his excessive trading.
McGee contends that his trades are congruous with his investment strategy of “averaging down.” Averaging down “occurs when an investor ... buys additional stock at a price lower than the initial investment, which reduces the average price per share of the total investment.” McGee, 955 F.Supp.2d at 472 n. 12. McGee contends that because PHLY‘s stock price at the time of his July trades was lower than the price at which he had previously purchased the stock, his trading was “not inconsistent with his innocence.” Appellant‘s Br. at 46. McGee additionally cites a “historic and significant spike in volume” near the time of his trades, which would encourage increased investor holdings. Id. For these reasons, McGee argues his trading alone fails to independently establish perjury because there were innocent motives for his trades.
We agree with the District Court that McGee‘s trading records constitute independent corroborating evidence and that “[t]he jury obviously rejected [McGee‘s averaging-down] argument.” McGee, 955 F.Supp.2d at 472. Unlike in Chestman, in which the defendant‘s trading was consistent with his position that he researched the company and invested accordingly, McGee‘s high-volume trades were anomalous and inconsistent with an averaging-down strategy. McGee did not engage in similar trading activity during prior periods of low PHLY stock prices. Yet, in the weeks preceding PHLY‘s sale, McGee increased his holdings in PHLY from 10 percent of his portfolio on June 30, 2008 to 60 percent by July 23, 2008, the date PHLY‘s sale was publicly announced. Moreover, there is scant evidence McGee knew about a “historic and significant spike in volume” or that he would increase his holdings in PHLY so appreciably based on such a trading spike. As the District Court held, “[t]he unusual timing and the large number of the shares purchased within a three-week period of time when compared to his previous holdings in PHLY stock, and the significant loan he took to purchase the stock is [sufficient] corroborative evidence.” Id. Accordingly, we reject McGee‘s argument that his trading records do not corroborate Maguire‘s testimony.
2.
McGee next contends that there was insufficient evidence that his sworn statements were false. McGee first claims that
We do not agree that Maguire‘s testimony was unclear. Maguire plainly testified that he disclosed PHLY‘s sale before McGee‘s suspicious July trades. Maguire testified that a week or two after June 21-22, 2008, he attended a weekend golf tournament where he drank. Maguire further testified that right after the golf tournament, he recommenced his AA attendance and told McGee about the sale after a meeting. Though Maguire did not point to an exact date, his testimony indicates that he disclosed the information within the first two weeks of July 2008, before McGee‘s first purchase of PHLY stock on the evening of July 14, 2008. Maguire‘s testimony therefore directly contradicts McGee‘s sworn statement before the SEC that he did not have any inside information “prior to making [his] purchases in Philadelphia Consolidated in July of ‘08.” J.A. 52. The jury was free to accept or reject Maguire‘s testimony, which was not so unclear as to invalidate McGee‘s perjury conviction.
We reject also McGee‘s argument that the SEC‘s questions were ambiguous. “Precise questioning is imperative as a predicate for the offense of perjury.” Bronston v. United States, 409 U.S. 352, 362, 93 S.Ct. 595, 34 L.Ed.2d 568 (1973). However, our Court has “eschew[ed] a broad reading of Bronston,” noting instead that, “[a]s a general rule, the fact that there is some ambiguity in a falsely answered question will not shield the respondent from a perjury or false statements prosecution.” United States v. Reilly, 33 F.3d 1396, 1416 (3d Cir.1994) (quoting United States v. Ryan, 828 F.2d 1010, 1015 (3d Cir.1987)).
We agree with the District Court, which held that although some questions were imprecise, they were not so ambiguous that McGee‘s answers were literally true. McGee was specifically asked, “Did you have any information prior to making your purchases in [PHLY] in July of ‘08 that there might be something afoot at the company, that there might be something happening with the stock?” J.A. 52. McGee responded, “No.” J.A. 52. McGee makes much of the word “afoot,” arguing that its implication of mischief or trouble makes his answer literally true. Appellant‘s Br. at 54. McGee strains to find ambiguity in the question. Read in its entirety, the question asks whether McGee had any information concerning PHLY stock in July. McGee‘s express denial cannot be characterized as literally true.
McGee‘s efforts to find ambiguity in other questions are similarly flawed. McGee was asked, “W[ere] there any rumors going on that you heard about [PHLY] being bought that led you to purchase the stock in July?” J.A. 53. McGee answered, “No. I knew nothing.” J.A. 54. McGee was additionally asked, “In any of these interactions [with Maguire] during that time frame, did you ever sense or pick up any type of information ... that would suggest that the company was going to be purchased?” J.A. 53. McGee answered, “I did not.” J.A. 53. McGee argues that the words “rumors” and “sense” relate to gossip and intuition, not whether anyone directly told him about the sale. We do not accept McGee‘s contrived interpretation of
3.
We hold that Maguire‘s testimony was corroborated and there was sufficient evidence to support the falsity of McGee‘s statements under oath. Accordingly, we will affirm McGee‘s perjury conviction.
IV.
Finally, McGee contends that he is entitled to a new trial based on a newly discovered affidavit. We review the denial of a motion for a new trial pursuant to Rule 33 of the Federal Rules of Criminal Procedure for abuse of discretion. United States v. Quiles, 618 F.3d 383, 390 (3d Cir.2010). Under Rule 33, “[u]pon the defendant‘s motion, the court may vacate any judgment and grant a new trial if the interest of justice so requires.” Fed. R.Crim.P. 33. Five requirements must be met to justify a new trial on the basis of newly discovered evidence:
(a) the evidence must be in fact, newly discovered, i.e. discovered since trial; (b) facts must be alleged from which the court may infer diligence on the part of the movant; (c) the evidence relied on must not be merely cumulative or impeaching; (d) it must be material to the issues involved; and (e) it must be such, and of such nature, [that the evidence] would probably produce an acquittal.
Quiles, 618 F.3d at 388-389 (quoting United States v. Saada, 212 F.3d 210, 216 (3d Cir.2000)). To warrant a new trial based on impeachment evidence, there must be “a factual link between the heart of the witness‘s testimony at trial and the new evidence” and “[t]his link must suggest directly that the defendant was convicted wrongly.” Id. at 392 (citation omitted).
McGee argues that a new trial is warranted based on an affidavit by Tyler D., which came to light during civil discovery after his criminal conviction. He maintains that he was previously unable to find a witness willing to deny that the statement “what you hear here, stays here” was made at the AA meetings he and Maguire attended. Appellant‘s Br. at 40. McGee contends that this evidence would rebut the existence of a relationship of trust or confidence related to AA and “surely would produce an acquittal.” Id.
McGee fails to meet the five requirements for a new trial based on newly discovered evidence. First, he fails to explain what diligence he used to procure Tyler D.‘s testimony although he has known Tyler D. and attended AA with him since 2005. Tyler D. actually testified on behalf of McGee at his criminal sentencing, yet McGee fails to clarify why he did not offer Tyler D.‘s testimony at trial before sentencing. Additionally, the affidavit does not “suggest directly that the defendant was convicted wrongly” or attack the heart of Maguire‘s testimony. Quiles, 618 F.3d at 392. As noted above, even if confidentiality is not a tenet of AA,
V.
For the foregoing reasons we will affirm.
*
*
*
*
*
*
The judgment of the District Court will be affirmed.
Notes
Q: [SEC attorney] Did you have any information prior to making your purchases in Philadelphia Consolidated in July of ‘08 that there might be something afoot at the company, that there might be something happening with the stock?
A: [McGee] No.
Q: You didn‘t get a feeling from anyone that there was some activity, maybe [PHLY executives] weren‘t at a certain event that they were always at and you thought something might be going on, that they were busy?
A: No, there was nothing like that ....
Q: Any other events that you recall in let‘s say--beginning in maybe March of ‘08 going forward?
A: March of ‘08?
Q: Anything from that time forward till you bought?
A: No.
Q: How about any contacts, do you recall having any conversations or contacts with [PHLY executives]?
A: Oh, I talked to [Maguire], you know, just checked in with him. Made sure he was doing alright in our common deal. There‘s a certain amount of our conversations that kind of revolve around that bike environment.
Q: In any of these interactions that you had with him during that time frame, did you ever sense or pick up any type of information or queue [sic] that would suggest that the company was going to be purchased?
A: I did not.
Q: Was there any rumors going on that you heard about the company being bought that led you to purchase the stock in July?
A: No. I knew nothing. I mean there was not a factor.
Q: And there‘s no indication from any of the family members, generic or otherwise, to suggest to you to purchase the stock, whether it not be specific about whether you bought out, but any other indications to you that it might be a good time to buy the stock?
A: If there were, it was so generic that I didn‘t pick up on it. I mean I did not pick up on anything. I did not recognize any comment that made me take pause to think.
J.A. 52-54 (emphasis in original) (footnote omitted).