United States v. Ryan D. Evans
2007 U.S. App. LEXIS 11344, 2007 WL 1412546, 486 F.3d 315 (2007)
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Rule of Law:
A tippee's criminal liability for insider trading is not foreclosed by the acquittal of the tipper because the elements required to convict a tippee are different from those required to convict a tipper; specifically, the tipper's breach of fiduciary duty need not be criminal or willful for a knowing tippee to be held liable.
Facts:
- Paul Gianamore worked as a financial analyst at the investment bank Credit Suisse First Boston, where he had access to confidential, nonpublic information about corporate mergers and tender offers.
- Gianamore and Ryan Evans were friends who met in college and communicated frequently by phone and email.
- Gianamore provided Evans with nonpublic information regarding four upcoming corporate transactions that Credit Suisse was involved with: a merger involving Jostens, Inc., and tender offers for Charter PLC, Hussman International, and Burns International.
- On four separate occasions between December 1999 and August 2000, Evans used his online brokerage account to purchase stock in these companies.
- Evans made these purchases just before the transactions were publicly announced, often on the same day the target company's board approved the deal.
- Immediately after each transaction was publicly announced, Evans sold his shares, realizing substantial profits totaling over $465,000.
Procedural Posture:
- The federal government charged Paul Gianamore and Ryan Evans in an eight-count indictment with securities law violations.
- In the first trial in federal district court, a jury acquitted Gianamore on all counts.
- The same jury acquitted Evans on a conspiracy charge but was unable to reach a verdict (deadlocked) on seven substantive counts of insider trading and fraud.
- Evans moved for a judgment of acquittal on the remaining counts, which the district court denied.
- The government retried Evans on the seven substantive counts.
- A second jury found Evans guilty on all seven counts.
- Evans appealed his conviction to the U.S. Court of Appeals for the Seventh Circuit.
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Issue:
Does the acquittal of a tipper on insider trading charges preclude the conviction of the tippee who traded on the nonpublic information provided by that tipper?
Opinions:
Majority - Wood, Circuit Judge.
No. The acquittal of a tipper does not preclude the conviction of the tippee because their respective criminal liabilities are not identical. A tippee can be found guilty of insider trading even if the tipper is acquitted, as inconsistent verdicts are permissible and the elements required for tippee liability are distinct from those for tipper liability. Citing Dirks v. SEC, the court explained that tippee liability is derivative of the insider's breach of a fiduciary duty. This requires showing (1) the insider breached a duty by disclosing the information, and (2) the tippee knew or should have known of the breach. The court reasoned that an insider like Gianamore could breach his duty of confidentiality without the criminal intent (willfulness) required for his own conviction. However, a tippee like Evans, who knowingly trades on information he understands was improperly disclosed, can be held criminally liable for his own actions. The court relied on Standefer v. United States, which held that an aider and abettor can be convicted even if the principal is acquitted, rejecting the idea of nonmutual estoppel against the government in criminal cases.
Analysis:
This decision solidifies the principle that tipper and tippee liability, while related, are legally distinct, allowing for prosecution of a tippee even when the government cannot secure a conviction against the tipper. It prevents a tippee from using the tipper's acquittal as a legal shield, focusing the inquiry instead on the tippee's own knowledge and intent. This strengthens the government's hand in insider trading cases, particularly where a tipper's motives or criminal intent are ambiguous, by allowing prosecutors to focus on the clearer misconduct of the party who actually traded and profited from the confidential information.
