Opposition Brief — Mathew Martoma, Petitioner v. United States

No. 18-972

In the Supreme Court of the United States

MATHEW MARTOMA, PETITIONER

v.

UNITED STATES OF AMERICA

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

BRIEF FOR THE UNITED STATES IN OPPOSITION

NOEL J. FRANCISCO

Solicitor General

Counsel of Record

BRIAN A. BENCZKOWSKI

Assistant Attorney General

ROSS B. GOLDMAN

Attorney

Department of Justice

Washington, D.C. 20530-0001

SupremeCtBriefs@usdoj.gov

(202) 514-2217

QUESTION PRESENTED

Whether the district court’s instructions to the jury

on the requirement, in an insider-trading prosecution

based on a tipper’s disclosure of material nonpublic information to a tippee, that the tipper must receive or

anticipate a “personal benefit from the disclosure,”

Dirks v. SEC, 463 U.S. 646, 663 (1983), were plainly erroneous.

(I)

TABLE OF CONTENTS

Page

Opinions below .............................................................................. 1

Jurisdiction .................................................................................... 1

Statement ...................................................................................... 2

Argument..................................................................................... 13

Conclusion ................................................................................... 22

TABLE OF AUTHORITIES

Cases:

Bateman Eichler, Hill Richards, Inc. v. Berner,

472 U.S. 299 (1985).............................................................. 15

Chiarella v. United States, 445 U.S. 222 (1980) ................... 3

Dirks v. SEC, 463 U.S. 646 (1983) ............................... passim

Hedgpeth v. Pulido, 555 U.S. 57 (2008) ......................... 18, 21

Puckett v. United States, 556 U.S. 129 (2009) .................... 14

SEC v. Cuban, 620 F.3d 551 (5th Cir. 2010) ....................... 20

SEC v. Rocklage, 470 F.3d 1 (1st Cir. 2006) ........................ 20

SEC v. Sargent, 229 F.3d 68 (1st Cir. 2000) ........................ 20

Salman v. United States, 137 S. Ct. 420 (2016) ......... passim

United States v. Bray, 853 F.3d 18 (1st Cir. 2017)....... 19, 20

United States v. Dominguez Benitez, 542 U.S. 74

(2004) .................................................................................... 14

United States v. Evans, 486 F.3d 315 (7th Cir.),

cert. denied, 552 U.S. 1050 (2007) ..................................... 20

United States v. McPhail, 831 F.3d 1 (1st Cir. 2016) ........ 19

United States v. Newman, 773 F.3d 438

(2d Cir. 2014), cert. denied, 136 S. Ct. 242

(2015) .................................................................... 8, 10, 11, 13

United States v. O’Hagan, 521 U.S. 642 (1997) .......... 2, 3, 14

Wisniewski v. United States, 353 U.S. 901 (1957) ............. 19

(III)

IV

Statutes, regulation, and rule:

Page

Securities Exchange Act of 1934, 15 U.S.C. 78a

et seq. ...................................................................................... 2

15 U.S.C. 78j(b) (2006) (§ 10(b)) ......................... 2, 3, 7, 14

15 U.S.C. 78ff ................................................................. 2, 7

18 U.S.C. 371 ........................................................................ 2, 7

17 C.F.R. 240.10b-5 ............................................................. 2, 3

Sup. Ct. R. 10 ......................................................................... 17

In the Supreme Court of the United States

No. 18-972

MATHEW MARTOMA, PETITIONER

v.

UNITED STATES OF AMERICA

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

BRIEF FOR THE UNITED STATES IN OPPOSITION

OPINIONS BELOW

The opinion of the court of appeals (Pet. App. 1-48)

is reported at 894 F.3d 64. That opinion amended and

superseded an earlier panel opinion (Pet. App. 50-119),

which is reported at 869 F.3d 58.

JURISDICTION

The judgment of the court of appeals was entered on

August 23, 2017. A petition for rehearing was denied on

August 27, 2018 (Pet. App. 49). On November 1, 2018,

Justice Ginsburg extended the time within which to file

a petition for a writ of certiorari to and including

December 26, 2018. On December 10, 2018, Justice

Ginsburg further extended the time to and including

January 24, 2019, and the petition was filed on that date.

The jurisdiction of this Court is invoked under 28 U.S.C.

1254(1).

(1)

2

STATEMENT

Following a jury trial in the United States District

Court for the Southern District of New York, petitioner

was convicted on one count of conspiracy to commit securities fraud, in violation of 18 U.S.C. 371, and two

counts of securities fraud, in violation of 15 U.S.C. 78j(b)

(2006) and 15 U.S.C. 78ff. Judgment 1. He was sentenced to 108 months of imprisonment, to be followed

by three years of supervised release. Judgment 2-3.

The court of appeals affirmed. Pet. App. 1-48.

1. Section 10(b) of the Securities Exchange Act of

1934, 15 U.S.C. 78a et seq., makes it unlawful to “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 [Securities and Exchange Commission

(SEC)] may prescribe.” 15 U.S.C. 78j(b) (2006). The

SEC’s Rule 10b-5, which implements Section 10(b), forbids the use, “in connection with the purchase or sale of

any security,” of “any device, scheme, or artifice to defraud” or any other “act, practice, or course of business”

that “operates * * * as a fraud or deceit.” 17 C.F.R.

240.10b-5.

Insider trading is one of the deceptive devices prohibited by Section 10(b) and Rule 10b-5. Under the

“ ‘classical theory’ ” of insider trading, a corporate insider

violates Section 10(b) and Rule 10b-5 by “trad[ing] in

the securities of his corporation on the basis of material,

nonpublic information.” United States v. O’Hagan,

521 U.S. 642, 651-652 (1997). Such trading “qualifies as

a ‘deceptive device’ ” because it violates the “ ‘relationship of trust and confidence * * * between the shareholders of a corporation and those insiders who have ob-

3

tained confidential information by reason of their position with that corporation.’ ” Id. at 652 (quoting Chiarella v. United States, 445 U.S. 222, 228 (1980)). To

avoid deceiving “uninformed . . . stockholders,” a corporate insider in possession of such information must

either publicly “disclose” it or “abstain from trading.”

Ibid. (brackets and citation omitted).

Under the “ ‘misappropriation theory’ ” of insider

trading, a person violates Section 10(b) and Rule 10b-5

“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

652. Whereas the classical theory “premis[es] liability

on a fiduciary relationship between company insider

and purchaser or seller of the company’s stock,” the

misappropriation theory rests on the “fiduciary-turnedtrader’s deception of those who entrusted him with access to confidential information.” Ibid. The misappropriation theory thus “outlaws trading on the basis of

nonpublic information” by “outsider[s]” to the corporation who act fraudulently. Id. at 652-653.

In either case, individuals under a fiduciary duty to

disclose material nonpublic information or abstain from

trading on the basis of the information “also may not tip

[the] information to others for trading.” Salman v.

United States, 137 S. Ct. 420, 423 (2016); see id. at 425

n.2. “The tippee acquires the tipper’s duty to disclose

or abstain from trading if the tippee knows the information was disclosed in breach of the tipper’s duty, and

the tippee may commit securities fraud by trading in

disregard of that knowledge.” Id. at 423. “A tipper

breaches such a fiduciary duty * * * when [he] discloses the inside information for a personal benefit.”

Ibid.; see Dirks v. SEC, 463 U.S. 646, 664 (1983).

4

2. Petitioner was convicted of securities fraud for

trading on the basis of material nonpublic information

regarding the results of a clinical trial of an experimental drug. Pet. App. 4-7. Petitioner received the information from two physicians involved with the clinical

trial, whom petitioner had cultivated for nearly two

years as paid sources of inside information. Gov’t C.A.

Br. 2-3. Petitioner traded on the tips to make profits

and avoid losses of approximately $275 million. Id. at 3.

a. Petitioner worked as a portfolio manager at S.A.C.

Capital Advisors (SAC), a hedge fund owned and managed by Steven Cohen. Pet. App. 4. Petitioner “managed an investment portfolio * * * focused on pharmaceutical and healthcare companies.” Ibid. In 2006, petitioner began accumulating shares of two pharmaceutical companies, Elan Corporation and Wyeth, which

were jointly developing an experimental drug called

bapineuzumab to treat Alzheimer’s disease. Ibid.; see

Trial Tr. (Tr.) 117, 124. Petitioner also advised Cohen,

who managed the hedge fund’s largest portfolio, to buy

shares in Elan and Wyeth. Pet. App. 4.

At the time, bapineuzumab was in a Phase II clinical

trial. Tr. 124-125.1 To glean more information about the

clinical trial, petitioner contacted two “expert networking firms” and sought to consult with 22 doctors whom

petitioner identified as involved with the clinical trial.

Gov’t C.A. Br. 4. Ultimately, he arranged paid consultations with two such doctors: Dr. Sidney Gilman, who

oversaw the “safety monitoring committee” of the clinical trial, and Dr. Joel Ross, who served as a principal

investigator for the clinical trial. Pet. App. 5.

Clinical trials to study the safety and effectiveness of new drugs

generally proceed in three phases involving successively larger

groups of patients. See Tr. 272-273.

1

5

Petitioner arranged approximately 43 consultations

with Dr. Gilman, at a rate of $1000 per hour—paying

Dr. Gilman more than $70,000 through an expert networking firm. Pet. App. 5 & n.1; Gov’t C.A. Br. 5.

Although Dr. Gilman knew that he was required not to

disclose any confidential information from the clinical

trial, he “nevertheless provided [petitioner], whom he

knew to be an investment manager seeking information

to help make securities trading decisions, with confidential updates on the drug’s safety that he received during

the meetings of the safety monitoring committee.” Pet.

App. 5. Dr. Gilman also provided petitioner with the

dates of upcoming meetings, which enabled petitioner

“to schedule consultations with Dr. Gilman shortly after

each one.” Ibid. Based on the information he obtained,

petitioner was able to amass a large position in Wyeth

and Elan stock secure in the knowledge—not yet known

to the market—that the clinical trial had not revealed

any serious safety problems. Gov’t C.A. Br. 6.

Petitioner also met “on many occasions between 2006

and July 2008” with Dr. Ross. Pet. App. 5. Petitioner

paid Dr. Ross approximately $1500 per hour for those

consultations, through an expert networking firm. Id.

at 5 & n.1. Like Dr. Gilman, Dr. Ross knew that he was

required to maintain the confidentiality of information

about the bapineuzumab clinical trial, but he too “provided [petitioner] with [confidential] information about

the clinical trial, including information about his patients’ responses to the drug and the total number of

participants in the study.” Id. at 6.

b. The final results of the Phase II trial were scheduled to be released at a conference on Alzheimer’s disease on July 29, 2008. Pet. App. 6. Dr. Gilman was selected to present the results at the conference. Ibid. On

6

July 15 and 16, Dr. Gilman was “unblinded” to the final

efficacy results for the first time. Gov’t C.A. Br. 7. Dr.

Gilman “identified two major weaknesses in the data

that called into question the efficacy of the drug as compared to the placebo.” Pet. App. 6 (citation and internal

quotation marks omitted).

On July 17, 2008—one day after seeing the final

results—Dr. Gilman shared what he had learned with

petitioner in a 90-minute phone call. Pet. App. 6. That

same day, petitioner bought a ticket to fly to Michigan

to meet with Dr. Gilman in person; the meeting took

place two days later, on July 19. Id. at 6-7. “At that

meeting, Dr. Gilman showed [petitioner] a PowerPoint

presentation containing the efficacy results and discussed the data with him in detail.” Id. at 7. Dr. Gilman

“knew that [petitioner] was an investment manager who

was seeking information on which to base securities

trading decisions” and “plainly understood the valuable

nature of the information.” Id. at 27-28. Dr. Gilman did

not submit an invoice to be paid for the July 17 telephone call or the July 19 meeting; he later explained

that seeking to be paid for such a consultation, shortly

after being one of the few persons to whom the final results were disclosed, would have been “tantamount to

confessing that [he] was feeding * * * [petitioner] inside information.” Tr. 1918; see Gov’t C.A. Br. 19.

Petitioner emailed Cohen the morning after meeting

with Dr. Gilman. Pet. App. 7. The subject line of the

email was “It’s important,” and petitioner asked Cohen

if they could talk by phone. Ibid. The two then spoke

by phone, after which petitioner “emailed Cohen a summary of SAC’s Elan and Wyeth holdings.” Ibid. On

July 21, 2008, “SAC began to reduce its position in Elan

and Wyeth securities and entered into short-sale and

7

options trades that would be profitable if Elan’s and

Wyeth’s stock fell.” Ibid. Petitioner sold all of the Elan

and Wyeth shares in his own portfolio and shorted Wyeth’s stock. Gov’t C.A. Br. 8.

On July 29, 2008, Dr. Gilman publicly presented the

results of the bapineuzumab clinical trial. Pet. App. 7.

Elan’s stock price dropped during the announcement;

by the following afternoon, Elan’s and Wyeth’s share

prices had dropped by 42% and 12%, respectively. Ibid.

As a result of the preceding week’s trades, however,

SAC made “approximately $80.3 million” and avoided

$194.6 million in losses after the announcement. Ibid.

Petitioner himself received a $9.3 million bonus “based

in large part on his trading activity in Elan and Wyeth.”

Ibid.; see Gov’t C.A. Br. 9.

3. On August 22, 2013, a grand jury in the Southern

District of New York returned a superseding indictment charging petitioner with one count of conspiracy

to commit securities fraud, in violation of 18 U.S.C. 371,

and two counts of securities fraud, in violation of

15 U.S.C. 78j(b) (2006) and 15 U.S.C. 78ff. Superseding

Indictment 1-13.

The case proceeded to trial. With regard to the government’s requirement to prove that Dr. Gilman or Dr.

Ross disclosed material nonpublic information to petitioner for personal benefit, see p. 3, supra, the district

court instructed the jury as follows:

If you find that Dr. Gilman or Dr. Ross disclosed material, non-public information to [petitioner], you must

then determine whether the government proved beyond a reasonable doubt that Dr. Gilman or Dr. Ross

received or anticipated receiving some personal benefit, direct or indirect, from disclosing the material,

non-public information at issue.

8

The benefit may, but need not be, financial or tangible in nature; it could include obtaining some future

advantage, developing or maintaining a business contact or a friendship, or enhancing the tipper’s reputation.

A finding as to benefit should be based on all the

objective facts and inferences presented in the case.

You may find that Dr. Gilman or Dr. Ross received a

direct or indirect personal benefit from providing inside information to [petitioner] if you find that Dr.

Gilman or Dr. Ross gave the information to [petitioner] with the intention of benefiting themselves in

some manner, or with the intention of conferring a

benefit on [petitioner], or as a gift with the goal of

maintaining or developing a personal friendship or a

useful networking contact.

Tr. 3191; see Pet. App. 8. Petitioner did not object to

that instruction. See Pet. App. 62.

The jury found petitioner guilty on all counts. Pet.

App. 1. The district court sentenced petitioner to

concurrent terms of imprisonment of 60 months on the

conspiracy count and 108 months on the substantive

securities-fraud counts, to be followed by three years of

supervised release. Judgment 2-3.

4. The court of appeals affirmed. Pet. App. 1-48.2 In

relevant part, petitioner challenged the personal-benefit

jury instruction in light of a circuit decision postdating

his conviction, United States v. Newman, 773 F.3d 438

(2d Cir. 2014), cert. denied, 136 S. Ct. 242 (2015), which

this Court abrogated in part during his appeal, see Sal-

The panel issued an opinion in August 2017 (Pet. App. 50-119)

and a substantially amended opinion in June 2018 (id. at 1-48).

2

9

man, 137 S. Ct. at 428. The court determined that petitioner’s forfeited claim did not warrant plain-error relief because the challenged instruction did not affect petitioner’s substantial rights, given the “compelling evidence” that Dr. Gilman and Dr. Ross “shared a relationship [with petitioner] suggesting a quid pro quo” of consulting fees in exchange for tips. Pet. App. 27; see id.

at 3-4, 24-28.

a. The court of appeals began by reviewing this

Court’s seminal decision in Dirks v. SEC, supra. Pet.

App. 14-16. Dirks explained that a tippee “assume[s]” a

“derivative” fiduciary duty not to trade on the basis of

material nonpublic information (or to disclose the information) when the tippee receives such information and

the tippee “knows or should know that” the information

was disclosed “improperly,” in breach of an insider’s

fiduciary duty. 463 U.S. at 659-660. “In determining

whether a tippee is under an obligation to disclose or abstain, it thus is necessary to determine whether the insider’s ‘tip’ constituted a breach of the insider’s fiduciary

duty.” Id. at 661. That question, in turn, “depends in

large part on the purpose of the disclosure.” Id. at 662.

Dirks held that “the test” for a breach of fiduciary

duty is “whether the insider personally will benefit, directly or indirectly, from his disclosure,” such as

through “a pecuniary gain or a reputational benefit that

will translate into future earnings.” 463 U.S. at 662,

663. The Court observed that “[t]here are objective

facts and circumstances that often justify * * * an inference” that the “insider receive[d] a direct or indirect

personal benefit.” Id. at 663-664. “For example, there

may be a relationship between the insider and the recipient that suggests a quid pro quo from the latter, or

an intention to benefit the particular recipient.” Id. at

10

664. The relevant requirements are also satisfied “when

an insider makes a gift of confidential information to a

trading relative or friend”; in such a circumstance, “[t]he

tip and trade resemble trading by the insider himself

followed by a gift of the profits to the recipient.” Ibid.

b. Petitioner contended that the personal-benefit instruction, to which he did not object, was inaccurate because it permitted the jury to infer that the doctors benefited if they disclosed inside information to petitioner

“as a gift with the goal of maintaining or developing a

personal friendship.” Pet. App. 8 (citation omitted); see

Pet. C.A. Br. 26. In petitioner’s view, such an inference

was impermissible without proof of a “meaningfully

close personal relationship” between the tipper and tippee. Pet. App. 13. That proposed limitation on the giftgiving theory was drawn from the Second Circuit’s decision in Newman, which had announced that, “[t]o the

extent Dirks suggests that a personal benefit may be

inferred from a personal relationship between the tipper and tippee, where the tippee’s trades ‘resemble

trading by the insider himself followed by a gift of the

profits to the recipient,’ * * * such an inference is impermissible in the absence of proof of a meaningfully

close personal relationship that generates an exchange

that is objective, consequential, and represents at least

a potential gain of a pecuniary or similarly valuable nature.” 773 F.3d at 452 (quoting Dirks, 463 U.S. at 664).

The government contended that this Court’s decision

in Salman had abrogated that aspect of Newman. Pet.

App. 10. In Salman, the Court affirmed a conviction

where the tipper “ma[de] a gift of confidential information” to his brother (who then disclosed it to Salman).

137 S. Ct. at 427. The Court explained that such a disclosure is no different than if the tipper “personally

11

traded on the information * * * himself ” and then gave

the illicit proceeds (rather than the tip) to his brother.

Id. at 427-428. In reaching that conclusion, the Court

expressly disapproved of any requirement under Newman that the personal benefit to the tipper be “something of a ‘pecuniary or similarly valuable nature.’ ” Id.

at 428 (quoting Newman, 773 F.3d at 452).

c. The court of appeals in this case explained that it

“need not decide whether Newman’s gloss on the gift

theory is inconsistent with Salman.” Pet. App. 10. The

court found “compelling evidence that Dr. Gilman received a different type of personal benefit: $70,000 in

consulting fees, which can be seen either as evidence of

a quid pro quo-like relationship or simply advance payments for the tips of inside information that Dr. Gilman

went on to supply.” Ibid. The court additionally found

“sufficient evidence to prove Dr. Gilman received a personal benefit by disclosing inside information with the

intention to benefit” petitioner. Ibid.

Before turning to the particular jury instructions

challenged in this case, the court of appeals reasoned,

based on Dirks and circuit precedent, that evidence of a

tipper’s “intention to benefit” the tippee could itself

serve as a “standalone personal benefit,” for which

proof of a meaningfully close personal relationship between tipper and tippee is not required. Pet. App. 16-17.

That approach, the court explained, was “consonant

with Dirks” because evidence that the tipper intended

to benefit the tippee “demonstrates that the tipper improperly used inside information for personal ends” and

thus “proves a breach of fiduciary duty.” Id. at 17-18.

As to the jury instruction here, the court of appeals

found no plain error. Pet. App. 24-26. The court agreed

with petitioner that the portion of the instruction he

12

challenged, addressing gift-giving, was “incomplete”

under Newman, which the court understood as having

decided that a personal benefit may be inferred from an

insider’s gift of confidential information to a friend or

relative only if the jury also finds “a relationship suggesting a quid pro quo” or an “inten[t] to benefit” the

tippee. Id. at 24. The court did not find error in the

portion of the instruction stating that a personal benefit

may be inferred from evidence that Dr. Gilman or Dr.

Ross disclosed inside information “with the intention of

benefiting” themselves in some manner or “with the intention of conferring a benefit on” petitioner. Ibid. (citation omitted).

The court of appeals also determined that any deviation from Newman in the instruction did not “affect [petitioner’s] substantial rights” in this case, because the

“government produced compelling evidence that Dr.

Gilman, the tipper, entered into a relationship of quid

pro quo with” petitioner. Pet. App. 25 (citation and internal quotation marks omitted). The court observed

that Dr. Gilman “regularly and intentionally provided

[petitioner] with confidential information from the bapineuzumab clinical trial” in sessions billed at $1000 per

hour, in which he rendered “no legitimate service.”

Ibid. The court explained that, although unbilled, Dr.

Gilman’s July 17 and July 19 disclosures were part of

that pecuniary relationship, and the doctor “admitted at

trial” that he avoided billing on those occasions because

doing so would have been “ ‘tantamount to confessing’ ”

to breaching his fiduciary duty, given the limited number of individuals party to the final results at that time.

Id. at 25-26 (citation omitted). Thus, “on the compelling

facts of this case,” the court found it “clear beyond a

13

reasonable doubt that a properly instructed jury would

have found [petitioner] guilty.” Id. at 26.

The court of appeals also rejected petitioner’s challenge to the sufficiency of the evidence of personal benefit, stressing again the “compelling evidence” of a quid

pro quo relationship between petitioner and Dr. Gilman.

Pet. App. 27. The court noted that, in the alternative, a

reasonable jury could have found “that Dr. Gilman personally benefited by disclosing inside information with

the ‘intention to benefit’ ” petitioner. Ibid. (quoting Dirks,

463 U.S. at 664).

d. Judge Pooler dissented. Pet. App. 30-48. In her

view, the majority did not give full effect to Newman;

erred in reasoning that a fact-finder may infer that the

tipper personally benefited from proof of the tipper’s

intention to benefit the tippee; and misevaluated the evidence. See ibid. She also observed that (although she

disagreed with it), the majority’s harmlessness determination based on “objective evidence of a relationship

suggesting a quid pro quo” was sufficient for affirmance. Id. at 48.

ARGUMENT

Petitioner contends (Pet. 19-28) that the decision below conflicts with this Court’s decisions in Dirks v. SEC,

463 U.S. 646 (1983), and Salman v. United States,

137 S. Ct. 420 (2016). That contention does not warrant

review. The court of appeals correctly determined that

the personal-benefit jury instruction in this case was

not plainly erroneous, and its factbound decision does

not conflict with any decision of this Court or any other

court of appeals. No good reason exists to review petitioner’s claim, which effectively contends that isolated

language from the Second Circuit’s decision in United

States v. Newman, 773 F.3d 438 (2014), cert. denied,

14

136 S. Ct. 242 (2015), survives Salman—a question that

the court below did not address. Petitioner’s corrupt

quid pro quo arrangement fell within the heartland of

the “deceptive device[s]” the securities laws prohibit,

and his conviction broke no new ground. 15 U.S.C. 78j(b)

(2006). Accordingly, the petition for a writ of certiorari

should be denied.

1. The court of appeals correctly determined that

the personal-benefit jury instruction in this case was

not plainly erroneous. To show plain error, a defendant

must establish (i) error that (ii) was “clear or obvious,

rather than subject to reasonable dispute,” (iii) “affected

[his] substantial rights, which in the ordinary case means

he must demonstrate that it ‘affected the outcome of the

district court proceedings,’ ” and (iv) “ ‘seriously affect[ed]

the fairness, integrity or public reputation of judicial

proceedings.’ ” Puckett v. United States, 556 U.S. 129,

135 (2009) (citations omitted). “Meeting all four prongs

is difficult, ‘as it should be.’ ” Ibid. (quoting United States

v. Dominguez Benitez, 542 U.S. 74, 83 n.9 (2004)). Petitioner failed to do so.

a. In Dirks, “this Court explained that a tippee’s liability for trading on inside information hinges on

whether the tipper breached a fiduciary duty by disclosing the information.” Salman, 137 S. Ct. at 423; see

Dirks, 463 U.S. at 661.3 In determining whether an insider has breached his duty, the Court also explained

The personal-benefit requirement is the same under both the

“classical” theory of insider trading (at issue in Dirks) and the “misappropriation” theory (at issue here). See United States v. O’Hagan,

521 U.S. 642, 651-653 & n.5 (1997); cf. Salman, 137 S. Ct. at 425 n.2.

Accordingly, references in this brief to “insiders” include misappropriators.

3

15

that the relevant question “is whether the insider personally will benefit, directly or indirectly, from his disclosure.” Dirks, 463 U.S. at 662; see Salman, 137 S. Ct.

at 423.

To identify such a breach of duty, the fact-finder

must “focus on objective criteria,” and “[t]here are objective facts and circumstances that often justify such

an inference.” Dirks, 463 U.S. at 663-664. “For example,” the Court observed, “there may be a relationship

between the insider and the recipient that suggests a

quid pro quo from the latter, or an intention [on the part

of the insider] to benefit the particular recipient.” Id.

at 664; see id. at 663 (describing “pecuniary gain or a

reputational benefit that will translate into future earnings” as forms of personal benefit). In addition, “[t]he

elements of fiduciary duty and exploitation of nonpublic

information also exist when an insider makes a gift of

confidential information to a trading relative or friend,”

a situation in which “[t]he tip and trade resemble trading by the insider himself followed by a gift of the profits to the recipient.” Id. at 664; see Salman, 137 S. Ct.

at 427 (reaffirming this “gift-giving principle”); see also

Bateman Eichler, Hill Richards, Inc. v. Berner, 472 U.S.

299, 311 n.21 (1985) (similar).

b. The court of appeals faithfully applied those principles in evaluating the personal-benefit instruction

here, which closely tracked the language of Dirks. Pet.

App. 24-26. The district court instructed the jury to determine “whether the government proved beyond a reasonable doubt that Dr. Gilman or Dr. Ross received or

anticipated receiving some personal benefit, direct or

indirect, from” their disclosures. Tr. 3191. The court

explained that the personal benefit “need not be[] financial or tangible in nature” and that it “could include

16

* * * developing or maintaining a business contact or a

friendship, or enhancing the tipper’s reputation.” Ibid.

The court also instructed the jury that it could find the

requisite personal benefit if it found that “Dr. Gilman or

Dr. Ross gave the information to [petitioner] with the

intention of benefiting themselves in some manner, or

with the intention of conferring a benefit on [petitioner],

or as a gift with the goal of maintaining or developing a

personal friendship.” Ibid.; cf. Dirks, 463 U.S. at 664

(identifying “an intention to benefit the” tippee and “a

gift of confidential information to a trading relative or

friend” as among the “objective facts and circumstances

that often justify” inferring that the tipper acted for

personal benefit).

Although the court of appeals determined that the

instruction here omitted additional language that its prior

decision in Newman would require, see pp. 11-12, supra,

the court correctly found that any discrepancy “did not

affect [petitioner’s] substantial rights” and thus did not

amount to plain error. Pet. App. 25. The jury was instructed that it could find a personal benefit if the insiders disclosed information “with the intention of benefiting themselves,” including if the insiders “received or

anticipated receiving” a benefit that was “financial * * *

in nature.” Id. at 8 (citation omitted); see id. at 24 (finding “no error” in that portion of the instruction); cf.

Dirks, 463 U.S. at 662. And the court found “compelling

evidence” that Dr. Gilman tipped petitioner in exchange

for money, Pet. App. 25-26, i.e., that Dr. Gilman was “in

effect selling the information” to petitioner “for cash,”

Dirks, 463 U.S. at 664 (citation omitted). As the court

explained, the $70,000 that Dr. Gilman received from

petitioner could “be seen either as evidence of a quid

pro quo-like relationship, or simply advance payments

17

for the tips of inside information that Dr. Gilman went

on to supply” on June 17 and 19, 2008—when he disclosed the critical final results of the clinical trial but

did not directly bill petitioner. Pet. App. 10. The court

accordingly found it “clear beyond a reasonable doubt

that a rational jury would have found [petitioner] guilty

absent” any perceived error in the instruction. Id. at 26

(citation omitted).

c. As the dissenting judge herself recognized (Pet.

App. 48), the court of appeals’ determination that the

verdict here was supported by compelling evidence of a

quid pro quo relationship is in itself sufficient to uphold

petitioner’s conviction. Petitioner does not address the

plain-error standard; does not dispute that an insider

breaches his fiduciary duty by accepting money in exchange for disclosing material, nonpublic information to

a tippee; and does not challenge the jury instruction on

that issue. Indeed, petitioner acknowledges that “personal benefit may be proved by evidence of an actual

quid pro quo resulting in * * * ‘a pecuniary gain[.]’ ”

Pet. 20 (citation omitted). Trading on inside information derived from such a pecuniary quid pro quo—as

petitioner did—falls squarely within the fraudulent conduct prohibited by the securities laws. See Dirks,

463 U.S. at 663-664 (insider’s receipt of “a direct or

indirect personal benefit from the disclosure, such as a

pecuniary gain” will constitute a “breach of duty by the

insider”); see also Salman, 137 S. Ct. at 427.

Although petitioner disputes the court of appeals’

evaluation of the quid pro quo evidence in this case, that

dispute is the sort of quintessentially factbound question that does not warrant this Court’s review. See Sup.

Ct. R. 10 (“A petition for a writ of certiorari is rarely

granted when the asserted error consists of erroneous

18

factual findings or the misapplication of a properly

stated rule of law.”). And in light of the court of appeals’

determination that the jury would have found petitioner

guilty based on the quid pro quo portion of the instruction alone, any assertion of error in any other portion of

the instruction does not warrant review. See, e.g.,

Hedgpeth v. Pulido, 555 U.S. 57, 60-61 (2008) (per curiam) (holding that harmless-error analysis applies

when a jury is “instructed on multiple theories of guilt,

one of which is improper”).

2. Even if that were not the case, further review

would nevertheless be unwarranted. Petitioner errs in

contending (Pet. 19-28) that the decision below departs

from Dirks, Salman, and the decisions of other courts

of appeals with respect to whether proof of an insider’s

intention to benefit the tippee may suffice to prove that

the insider disclosed material nonpublic information for

personal benefit.

a. Petitioner principally argues that, “under Dirks,

the government must prove either a personal benefit to

the insider/tipper or a meaningfully close personal relationship from which such a benefit may be inferred.”

Pet. 19 (capitalization and emphasis altered). But petitioner’s proposed “meaningfully close personal relationship” test is found nowhere in Dirks. That language,

instead, appeared for the first time in any insider trading case in the Second Circuit’s decision in Newman.

See Pet. App. 23 (noting that those terms were “new to

* * * insider trading jurisprudence”). Petitioner himself repeatedly argued below that Newman marked a

significant change in that respect—not that his proposed “meaningfully close personal relationship” test

was compelled by this Court’s decision in Dirks. See,

19

e.g., Pet. C.A. Br. 15 (ascribing this supposed requirement to the “landmark Newman decision”).

At bottom, then, petitioner’s disagreement with the

decision below centers on whether it adhered to the

prior panel opinion in Newman. See Pet. 32 n.4. But

any tension between the two decisions is an issue for the

court of appeals, not this Court, to resolve. See

Wisniewski v. United States, 353 U.S. 901, 902 (1957)

(per curiam) (“It is primarily the task of a Court of Appeals to reconcile its internal difficulties.”). The government argued below that Salman had abrogated the

relevant portion of Newman, see Salman, 137 S. Ct. at

427-428, so that the panel below was free to disregard

Newman’s “meaningfully close personal relationship”

language. Gov’t C.A. Ltr. Br. 6-7 (Jan. 6, 2017); see id.

at 9 (noting that the jury instruction in Salman was “in

substance identical to the one” given here); pp. 10-11,

supra. The court of appeals declined to resolve that

question, see Pet. App. 10, and that court is capable of

addressing the issue if it is outcome-determinative in a

future case.

Petitioner is incorrect in suggesting (Pet. 21-22) that

the decision below conflicts with the decisions of other

courts of appeals. First, none of the decisions identified

by petitioner held that proof of a “meaningfully close

personal relationship” is always necessary for a jury to

find that an insider personally benefited in making a gift

of confidential information to a trading friend or relative.4 Second, none of those decisions is inconsistent

See United States v. Bray, 853 F.3d 18, 26-27 (1st Cir. 2017) (rejecting the defendant’s Newman-based argument that “an informational exchange between casual, as opposed to close, friends does

not meet Dirk’s personal benefit requirement,” in light of the evidence in that case); United States v. McPhail, 831 F.3d 1, 10-11

4

20

with the court of appeals’ understanding that, under

Dirks, evidence of a tipper’s “intent to benefit” the tippee can be a basis for inferring a personal benefit to the

tipper. Pet. App. 16; see, e.g., United States v. Bray,

853 F.3d 18, 26 (1st Cir. 2017) (noting that a personal

benefit may be inferred from evidence of the tipper’s

“intention to benefit the particular recipient ”) (quoting

Dirks, 463 U.S. at 664).

b. In the absence of any conflict with this Court’s

precedent or the law of any other circuit, petitioner

identifies no compelling reason to grant review of the

question he seeks to present. Petitioner asks the Court

to examine whether evidence that the tipper “intended

to confer a benefit on the tippee” may suffice to infer

that the tipper disclosed information for personal benefit. Pet. i (emphasis omitted); see Pet. 23-28. This case

would be an unsuitable vehicle to address that question,

however, because the answer would be academic here.

The court of appeals correctly determined that petitioner cannot show any plain error in the personal-benefit

instruction in light of the “compelling” evidence of the

quid pro quo exchange at the heart of petitioner’s fraud,

in which he corruptly cultivated two physicians as paid

(1st Cir. 2016) (rejecting a similar Newman-based argument); cf.

SEC v. Cuban, 620 F.3d 551, 557 n.38 (5th Cir. 2010) (pre-Newman

decision stating that “a gift [of inside information] to a trading

friend or relative” could suffice to show personal benefit) (citation

omitted); United States v. Evans, 486 F.3d 315, 321 (7th Cir.) (similar; noting that “the concept of gain is a broad one” under Dirks),

cert. denied, 552 U.S. 1050 (2007); SEC v. Rocklage, 470 F.3d 1, 7 n.4

(1st Cir. 2006) (observing that a gift of inside information between

siblings met the personal-benefit requirement); SEC v. Sargent,

229 F.3d 68, 77 (1st Cir. 2000) (finding sufficient evidence of personal benefit for a tip between friends). In addition, none of these

decisions involved the sort of pecuniary quid pro quo at issue here.

21

sources of inside information about the bapineuzumab

clinical trial. Pet. App. 25-26; see pp. 16-17, supra. The

evidence conclusively established that Dr. Gilman acted

to benefit himself financially (and the jury was properly

instructed on that form of personal benefit), whether or

not he also acted with the intent to benefit petitioner.

Given that petitioner does not dispute the quid pro quo

portion of the instruction, the result below would be the

same even if this Court were to agree with petitioner

that the instruction was flawed with respect to another

theory of liability. See Pulido, 555 U.S. at 60-61.

Petitioner provides no meaningful support for any

suggestion (Pet. 3, 33) that, in finding no plain error because of the quid pro quo evidence, the court of appeals

acted in bad faith to “insulate” or “shield” any discussion of the question presented from this Court’s review.

Petitioner’s own failure to object to the personal-benefit

jury instruction at trial triggered the plain-error standard of review, and the court of appeals appropriately relied on the substantial-rights prong of that standard to

deny relief. And petitioner’s suggestion (Pet. 31-32)

that this is solely a gift-giving case, because Dr. Gilman

did not submit an invoice to be paid for the July 17 telephone call and July 19 meeting at which he disclosed

the final clinical trial results to petitioner, is simply a

factbound dispute with the court of appeals. As already

explained, the court of appeals correctly determined

that the evidence showed that those disclosures were

part and parcel of the quid pro quo arrangement between the two. See Pet. App. 25-26; pp. 12-13, 16-17,

supra.

22

CONCLUSION

The petition for a writ of certiorari should be denied.

Respectfully submitted.

NOEL J. FRANCISCO

Solicitor General

BRIAN A. BENCZKOWSKI

Assistant Attorney General

ROSS B. GOLDMAN

Attorney

APRIL 2019