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Category: Insider Trading

Circuit Upholds Forfeiture Based on Appreciation

The Second Circuit (Pooler, Jacobs, Wesley) issued an opinion holding that a criminal forfeiture order in an insider trading case is not limited to the amount of funds acquired through illegal activity but may extend to the appreciation of those funds.  In the case United States v. Afriyie, 17-cr-2444 and 17-cr-4045, the Court upheld a conviction for securities fraud and wire fraud, and upheld an almost $2.8 million forfeiture order, but vacated and remanded a restitution order in light of the Supreme Court’s recent decision in Lagos v. United States, 138 S. Ct. 1684 (2018).


Circuit Upholds Rajaratnam SEC Civil Penalty

In an appeal arising in the aftermath of Raj Rajaratnam’s criminal conviction for insider trading, the Second Circuit (Lynch, Raggi, Droney) issued an opinion upholding an almost $93 million Securities and Exchange Commission (“SEC”) civil penalty that was imposed based on the same conduct that served as the basis for Rajaratnam’s conviction.  The case, Securities and Exchange Commission v. Raj Rajaratnam, No. 11-5124-cv, demonstrates that an individual convicted of insider trading may be required to pay a sizable fine under Section 21A of the Securities Exchange Act, despite having already paid a significant criminal penalty.  Despite some provocative comments by the district court about the defendant, the Circuit held that the imposition of the maximum possible fine under the statute was supported by law.


“King for a Day”

In a decision extolling jurors’ use of “common sense” to evaluate insider trading charges, the Second Circuit affirmed the conviction of Robert Schulman in United States v. Klein (Schulman), No. 17-3355.  Though the government’s case rested on only one piece of direct evidence—a statement by Schulman to a friend that he’d like to be “king for a day,” the Court (Katzmann, Kearse, Chin) rejected Schulman’s challenge to the sufficiency of evidence that he intended to pass on inside information to his investment advisor for purposes of trading.  The standard of review for sufficiency of the evidence on appeal is very deferential to the government, drawing all permissible inferences in favor of guilt.  Here, even one “boastful, impudent” remark has resulted in a criminal conviction.


Gupta Summary Order Republished As Opinion

Earlier this week, we discussed the Second Circuit’s summary order in the insider trading appeal by Rajat Gupta.  Gupta was convicted in SDNY as part of the string of successful prosecutions brought during the tenure of U.S. Attorney Preet Bharara.  The summary order affirmed the denial of Gupta’s 2255 petition, thereby leaving in place his conviction.  The Second Circuit, without explanation, has withdrawn the summary order and published the same decision as a per curiam opinion.  Other than the correction of minor typos, there appear to be no changes in the Court’s ruling.  A link to the published opinion is here.


Rajat Gupta’s Insider Trading Conviction Affirmed

In a brief summary order issued yesterday, the Second Circuit denied Rajat Gupta’s collateral attack on his insider trading conviction in Gupta v. United States, Nos. 15-2707(L), 15-2712(C).  In a decision reminiscent of the recent summary order in Whitman v. United States, the panel (Kearse, Wesley, Droney) passed on the opportunity to develop the law on the “personal benefit” element of insider trading and instead denied Gupta’s habeas petition on the primary ground that he procedurally defaulted by failing to raise the issue on direct appeal.


Notable Insider Trading Decision Affirmed, Despite Asserted “Personal Benefit” Error

In a short summary order issued on October 25, 2018, the Second Circuit (Newman, Lynch, Droney) affirmed the denial of a habeas petition in the case of Whitman v. United States.  This case could have given the Second Circuit an opportunity to address again a complicated area of insider trading law, but the Court instead rejected the appeal based on procedural grounds, holding that procedural default prevented the district court from granting the petition.