United States v. Parigian , 824 F.3d 5 ( 2016 )

United States Court of Appeals
For the First Circuit
No. 15-1994
UNITED STATES OF AMERICA,
Appellee,
v.
DOUGLAS A. PARIGIAN,
Defendant, Appellant.
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Denise J. Casper, U.S. District Judge]
Before
Kayatta, Stahl, and Barron,
Circuit Judges.
Allison J. Koury for appellant.
Andrew E. Lelling, Assistant United States Attorney, with
whom Carmen M. Ortiz, United States Attorney, was on brief, for
appellee.
May 26, 2016
KAYATTA, Circuit Judge. Acting on obviously nonpublic
information that a golfing buddy received from a corporate insider,
Douglas Parigian made in excess of $200,000 trading in securities.
The United States subsequently indicted Parigian for criminal
securities fraud. As ultimately amended, the indictment pressed
a so-called misappropriation theory against Parigian, arguing that
Parigian knew or should have known that, by providing the inside
information to Parigian, his buddy both breached a duty of trust
and confidence and personally benefited by doing so. See generally
United States v. O'Hagan, 521 U.S. 642, 651–53 (1997); SEC v.
Rocklage, 470 F.3d 1, 6–7 (1st Cir. 2006). After unsuccessfully
moving to dismiss the indictment for failure to allege a crime,
Parigian reached an agreement with the government whereby he pled
guilty to the charges conditionally, under Federal Rule of Criminal
Procedure 11(a)(2), so that this court could then rule on the
questions raised by his challenge to the superseding indictment.
We now do so, holding that Parigian's preserved challenges to the
indictment fall short of the mark.
I. Background
As ultimately amended, the grand jury's indictment
charged Parigian and his golfing buddy co-defendant Eric McPhail1
1 McPhail was separately convicted on the indictment's counts
following a jury trial. See Order of Judgment, United States v.
McPhail, No. 1:14-cr-10201-DJC-1 (D. Mass. Sept. 21, 2015), ECF
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with violating 15 U.S.C. §§ 78j(b), 78ff(a), and 18 U.S.C. § 2, by
"knowingly and willfully . . . employ[ing] manipulative and
deceptive devices and contrivances in connection with the purchase
and sale of securities in contravention of [Securities and Exchange
Commission ("SEC")] Rule l0b-5." See 17 C.F.R. § 240.10b–5(c).
Another count charged them both with conspiracy to commit the same
offense.2 See 18 U.S.C. § 371.
Ordinarily, because this appeal follows a guilty plea,
we would derive the facts from the plea agreement, the change-of-
plea colloquy, the unchallenged portions of the presentence
investigation report, and the sentencing hearing transcript. See
United States v. Ocasio-Cancel, 727 F.3d 85, 88 (1st Cir. 2013).
But because Parigian's appeal trains solely on the legal adequacy
of the challenged superseding indictment, we focus our review
within the indictment's four corners. See United States v. Horton,
580 F. App'x 380, 383 (6th Cir. 2014) (unpublished), cert. denied,
135 S. Ct. 1006 (2015) (limiting appellate review "to the four
corners of the indictment" when defendant entered conditional
No. 180, appeal docketed, No. 15-2106 (1st Cir. Sept. 23, 2015).
His parallel appeal of his criminal conviction is pending.
2
A third count charged Parigian alone with making false
statements in connection with the government's investigation. See
18 U.S.C. § 1001. Parigian ultimately pled guilty to a subsequent
information filed by the government that dropped this last charge.
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guilty plea preserving right to appeal denial of motion to dismiss
based on indictment's failure to state a crime).
In addition to its recitation of the offenses as
described and the laws allegedly violated by the defendants, the
eighteen-page indictment contained numerous factual allegations
describing each person's role in the insider trading scheme. The
scheme's insider ("Insider") was an un-indicted individual who
served from 2004 to 2011 as an executive at American Superconductor
Corporation ("AMSC"), a publicly-traded Massachusetts-based
corporation in the business of producing components used in the
wind power industry. McPhail and Insider were friends. The
indictment claimed that, by 2009, the relationship between McPhail
and Insider was one of "trust and confidence, including a history,
pattern, and practice of sharing professional and personal
confidences." They also shared "an understanding that information
conveyed between them was to remain confidential." The indictment
expressly alleged that Parigian "was aware of" that relationship
and "knew" that Insider was an executive at AMSC.
Beginning no later than July of 2009, Insider began
revealing to McPhail highly material inside information about AMSC
that allowed McPhail to predict the upshot of impending, yet-to-
be-announced earnings reports and major commercial transactions.
Notwithstanding his alleged understanding with Insider that he was
to treat the information confidentially, McPhail began to
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disseminate the information about developments at AMSC, mostly via
email, to a circle of regular golfing companions, including
Parigian. During the next two years, the tips allowed Parigian to
time his purchases and sales of AMSC securities (and options) so
as to avoid losses and secure gains in the wake of certain public
announcements of the information previously passed to him by
McPhail.
The email traffic accompanying this prescient trading
indicated that secrecy was the order of the day. One of McPhail's
early tips concluded with "SHHHHHHHHHHHHH!!!!!!!!!!!!!!!!!" The
group discussed whether the information would remain "safe" while
they tipped off another person. McPhail stressed the need to use
a dedicated email thread, while Parigian claimed that he was
deleting his emails.
There is no allegation that McPhail himself engaged in
trading. Rather, the indictment posits that he solicited "getting
paid back" by Parigian and the others with wine, steak, and visits
to a massage parlor. Parigian assured him that "I will take you
for a nice dinner at Grill 23." Another tipped trader offered
McPhail a free golf outing.
Parigian moved to dismiss the superseding indictment,
arguing that it failed to adequately allege several elements of
the crime of securities fraud committed by trading on
misappropriated inside information. After this motion was denied
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by the district court, see United States v. McPhail, No. 14-cr-
10201-DJC, 2015 WL 2226249, at *5 (D. Mass. May 12, 2015), Parigian
entered into a plea agreement that preserved his right to appeal
the denial of the motion. He was sentenced to time served and
three years of supervised release, with eight months of home
confinement.
II. Standard of Review
In reviewing a district court's denial of a motion to
dismiss an indictment, we review legal questions de novo, any
relevant factual findings for clear error, and the court's
"ultimate ruling" for abuse of discretion. United States v. Doe,
741 F.3d 217, 226 (1st Cir. 2013) (quoting United States v. Lopez–
Matias, 522 F.3d 150, 153 (1st Cir. 2008)).
An indictment is sufficient "if it contains the elements
of the offense charged, fairly informs the defendant of the charges
against which he must defend, and enables him to enter a plea
without fear of double jeopardy." United States v. Yefsky, 994
F.2d 885, 893 (1st Cir. 1993) (citing Hamling v. United States,
418 U.S. 87, 117 (1974)). A well-pleaded indictment can parrot
"the statutory language to describe the offense, but it must also
be accompanied by such a statement of facts and circumstances as
to inform the accused of the specific offense with which he is
charged." United States v. Savarese, 686 F.3d 1, 6 (1st Cir.
2012); see also Fed. R. Crim. P. 7(c)(1) (the "indictment . . .
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must be a plain, concise, and definite written statement of the
essential facts constituting the offense charged").
III. Analysis
The government's case against Parigian relies on the
"misappropriation" theory of liability for insider trading as
recognized in O'Hagan. In O'Hagan, corporate insiders
communicated material, nonpublic information to the corporation's
law firm in connection with a proposed tender offer. O'Hagan, 521
U.S. at 647–49. O'Hagan, who practiced law at that firm, used the
information to trade in the stock of the take-over target. Id.
The court held that O'Hagan's conduct constituted fraud in
connection with the purchase or sale of securities because, by
breaching his fiduciary duties owed to his firm and to his firm's
client, he appropriated confidential information of his law firm's
client in a manner that deceived "those who entrusted him with
access to confidential information." Id. at 652. In short, a
misappropriator who knowingly violates a "duty of loyalty and
confidentiality," id., and trades to his advantage, "gains his
advantageous market position through deception," id. at 656. "[I]t
is that deception which brings this trading within the statutory
language." Rocklage, 470 F.3d at 6.
The indictment seeks to portray McPhail, in the first
instance, as the misappropriator, alleging that he owed Insider a
duty of trust and confidence that McPhail breached by tipping
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Parigian. It then seeks to hold Parigian liable as a tippee who
traded with sufficient awareness of that breach. This derivative
application to a tippee one step removed from the initial violation
parallels what often occurs in classical insider trading cases,
where liability attaches not just to the insider or to the
insider's tippee, but also to a more remote tippee provided that
the remote tippee has sufficient knowledge of the facts that make
the conduct unlawful. See, e.g., United States v. Falcone, 257
F.3d 226, 235 (2d Cir. 2001) (affirming conviction of remote tippee
who knew "the details of the scheme"). Parigian does not dispute
that the misappropriation theory of criminal securities fraud can
apply in this manner to a remote tippee. As in Rocklage, we
therefore assume that it can so apply. See Rocklage, 470 F.3d at
14.
Parigian argues, instead, that the indictment fails to
allege criminal securities fraud because: (1) It does not employ
the proper measure of mens rea, (2) It does not adequately allege
awareness by Parigian that McPhail's disclosures breached a duty
of trust and confidentiality owed to Insider, (3) It does not
adequately allege that McPhail received a personal benefit from
tipping off Parigian, and, (4) It fails to allege that Insider
received a personal benefit. We address each argument in turn.
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A. Mens Rea
As we will describe, at various points the indictment
alleges that Parigian "knew or should have known" certain facts.
In theory, these allegations raise two different issues: (1) Is
"knew or should have known" an appropriate statement of the state
of mind (or "mens rea") required to support a criminal conviction
of a tippee under 15 U.S.C. § 78ff(a); and/or, (2) Are the facts
that Parigian is said to have known or had reason to know
sufficient to make his trading unlawful? In his reply brief,
Parigian claims to have raised both issues. The government, in
turn, cries foul, claiming that Parigian has waived any challenge
to the "knew or should have known" formulation by failing to raise
the challenge in both the district court and in his main brief on
appeal. To explain why we agree with the government, we need first
review the case law that bears on the proper definition of mens
rea in this criminal case.
The state of mind required to establish liability for
fraudulently trading securities depends, in relevant part, on
whether the government seeks to establish civil or criminal
liability. In a civil case, the government need only show that
"the tippee knows or should know that there has been a breach [of
the tipper's fiduciary duty]." Dirks v. SEC, 463 U.S. 646, 660
(1983). As the Second Circuit more recently explained in a civil
case, the Dirks "knows or should know standard pertains to a
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tippee's knowledge that the tipper breached a duty . . . to his
principal (under the misappropriation theory), by relaying
confidential information." SEC v. Obus, 693 F.3d 276, 288 (2d
Cir. 2012).
In a criminal case such as this one, though, the "knew
or should have known" formulation runs up against a decades-long
presumption that the government must prove that the defendant knew
the facts that made his conduct illegal. See generally Elonis v.
United States, 135 S. Ct. 2001, 2009–10 (2015); see also Staples
v. United States, 511 U.S. 600, 605–06 (1994); United States v.
Ford, No. 15-1303, 2016 WL 1458938, at *4–6 (1st Cir. Apr. 13,
2016). There are nevertheless at least two circuit court opinions
that apply the Dirks formulation in criminal securities fraud
cases. See United States v. Hughes, 505 F.3d 578, 593 (6th Cir.
2007); United States v. Evans, 486 F.3d 315, 324–25 (7th Cir.
2007). In each instance, though, application of the civil mens
rea standard proceeded without analysis or, apparently, challenge
by the defendant. The better view is that there is simply no
reason why the mens rea requirement of scienter that routinely and
presumptively applies in criminal cases would not apply in this
criminal case where Congress has given no indication that it should
not. See United States v. Newman, 773 F.3d 438, 450 (2d Cir.
2014), cert. denied, 136 S. Ct. 242 (2015) (proof that the
defendant knew the facts that make his conduct illegal is a
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necessary element of criminal Rule 10b-5 violations). Indeed, in
the case of a criminal violation of Rule 10b-5, the government
need prove that the defendant "willfully" violated the provision,
15 U.S.C. § 78ff(a), that is, that the defendant acted with
"culpable intent," O'Hagan, 521 U.S. at 666 (quoting Boyce Motor
Lines, Inc. v. United States, 342 U.S. 337, 342 (1952)).3
The indictment appears to have paid inconsistent heed to
this mens rea requirement in this criminal securities fraud case.
On the one hand, the indictment broadly accused Parigian of
"knowingly and willfully" violating Rule 10b-5, "by willfully
engaging in a scheme to misappropriate material, nonpublic
information about AMSC's finances and business activities and,
while in possession of that information, to profit by buying and
selling shares, and options on shares, of AMSC stock." On the
other hand, in summarizing the factual conclusions supporting the
charges, the indictment abandoned the statutory term "willful[],"
and abandoned as well the indictment's broadly used formulation of
3 The government misreads O’Hagan as endorsing the "knew or
should have known" formulation, even in a criminal case. While
that language does appear in the majority opinion's discussion of
O'Hagan's conviction for fraudulent trading in connection with a
tender offer under SEC Rule 14e–3(a), see O'Hagan, 521 U.S. at
675, the Court's opinion makes clear that it explicitly declined
to consider O'Hagan's arguments regarding Rule 14e–3(a)'s
"scienter requirement," and expressly noted that conviction for
violating that Rule also required the government to prove that the
violation was "willful[]," id. at 677 & n.23 (quoting 15 U.S.C.
§ 78ff(a)).
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"knowingly and willfully." Instead, the indictment alleged that
Parigian "knew or should have known" certain crucial facts,
including that "the Inside Information was material and nonpublic
and had been disseminated in violation of a fiduciary or similar
duty."
In short, had Parigian complained about the inconsistent
levels of mens rea embodied in the indictment, he would have had
a point. Whether such a complaint would have garnered much beyond
a further amendment of the indictment, we do not know because
Parigian never voiced any such complaint, directing his attention
instead at whether the facts he was said to know or have had reason
to know were sufficient to cover the elements of the crime.4
Parigian's motion and supporting memorandum made no argument that
the indictment was defective because it used the civil formulation
of "knew or should have known" as set forth in Obus. 693 F.3d at
292. To the contrary, Parigian expressly pointed the district
court to Obus as setting forth the applicable mens rea standard.5
4
For example, Parigian's argument that "[a] remote tippee
will not know whether he is subject to a duty to refrain from
trading unless he actually knows that the insider's disclosure of
information was wrong," went to whether the indictment contained
sufficient allegations that Parigian actually knew, but did not
address the appropriateness of the "should have known"
formulation.
5
It is possible that what Parigian had in mind is Obus's
general introductory discussion of civil mens rea, see Obus, 693
F.3d at 286 ("Negligence is not a sufficiently culpable state of
mind to support a section 10(b) civil violation."), rather than
its specific application of the Dirks "knew or should have known"
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The district court plainly did not read Parigian's
motion as challenging the adequacy of the "should have known"
formulation. Rather, doing exactly as Parigian urged, the district
court relied on Obus as setting forth the relevant mens rea
standard. See McPhail, 2015 WL 2226249, at *2 (quoting Obus, 693
F.3d at 289). It then rejected Parigian's primary argument that
the relationship between Insider and McPhail, as alleged, was not
one such that a duty of trust and confidence could have arisen
between the two. Id. at *3–4.
In his opening brief on appeal, Parigian made no claim
that the district court overlooked or misunderstood his argument.
His opening brief contained no mention at all of the indictment's
"knew or should have known" formulation. Instead, it paraphrased
the charge as alleging, for example, that he "knew that McPhail's
disclosure of the information was 'improper; that is in breach of
a duty.'"
Only in his reply brief did Parigian belatedly try to
argue that the "knew or should have known" language in the
indictment was problematic. And, even then, he limited the
argument on what is a reasonably complicated issue to a single
standard to the relevant component of tippee liability, see id. at
287–88 ("Thus, tippee liability can be established if a tippee
knew or had reason to know that confidential information was
initially obtained and transmitted improperly . . . ."). If that
is what counsel intended, neither her brief nor oral argument so
clarified.
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page, citing not a single criminal case and relying again
principally on Obus.
On this record, any argument that the use of the "knew
or should have known" formulation rendered the indictment
insufficient is both forfeited for failure to raise it below and
waived for failure to preserve it on appeal. See Igartúa v. United
States, 626 F.3d 592, 603 (1st Cir. 2010) ("Plain error review may
be available for forfeited arguments, but it is seldom available
for claims neither raised below nor on appeal."); Waste Mgmt.
Holdings, Inc. v. Mowbray, 208 F.3d 288, 299 (1st Cir. 2000) ("We
have held, with a regularity bordering on the monotonous, that
issues advanced for the first time in an appellant's reply brief
are deemed waived.").6
6
Judge Barron agrees that Parigian waived any claim that use
of the "knew or should have known" formulation on its own rendered
the indictment defective. But Judge Barron would hold that
Parigian did do enough to argue that the crime of insider trading
requires the government to prove that he actually knew of McPhail's
breach of a duty of confidentiality to Insider and not merely that
he knew or should have known of that breach. Judge Barron would
also hold that Parigian preserved his argument that the indictment
was defective because the facts that it sets forth alleging that
he knew of the breach--as opposed to that he merely "knew or should
have known" of it--did not suffice to "fairly inform[ him] of the
charges against which he must defend." United States v. Yefsky,
994 F.2d 885, 893 (1st Cir. 1993). Nevertheless, with respect to
that argument, Judge Barron finds that the facts alleged, as we
will describe them in the next section of this opinion, were
sufficient to give Parigian adequate notice.
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B. Duty of Trust and Confidence
We turn next to the mens rea argument that Parigian did
preserve: the argument that the indictment does not adequately
allege that he knew or should have known that McPhail's disclosures
breached a duty of trust and confidence owed to Insider. This
argument poses two questions: Does the indictment adequately
allege that McPhail's tips to Parigian breached a duty of trust
and confidence owed to Insider; and, Does the indictment adequately
allege that Parigian knew or should have known that the tips to
him breached that duty?
The misappropriation theory only applies when there is
a breach of a "duty of trust and confidence" owed by the tipper to
the insider. O'Hagan, 521 U.S. at 653. In O'Hagan, that duty and
its breach were obvious precisely because it is clear that a
company's legal counsel regularly receives information in trust
and confidence. See id. at 652–53, 653 n.5. Here, though, the
complaint alleges no formal type of fiduciary or confidential
relationship between Insider (or AMSC) and McPhail. Rather, it
describes a relationship in which one friend shares obviously
confidential information concerning his business with another
friend. So the question is: Is this relationship, as detailed in
the indictment, a relationship that will support the type of breach
of trust necessary to support conviction under the
misappropriation theory?
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O'Hagan described the kinds of relationships that might
give rise to such a duty as "a fiduciary or other similar
relation[ship]," id. at 670 (quoting Chiarella v. United States,
445 U.S. 222, 228 (1980)), an "agency or other fiduciary
relationship," id. at 661, or, simply, "a relationship of trust
and confidence," id. at 652 (quoting Chiarella, 445 U.S. at 228);
see generally United States v. McGee, 763 F.3d 304, 314 (3d Cir.
2014), cert. denied, 135 S. Ct. 1402 (2015) (describing O'Hagan's
"broad[] brush" approach). In the wake of O'Hagan, the SEC turned
to its rule-making authority under Section 10(b) of the Securities
Exchange Act of 1934, 48 Stat. 891 (codified as amended at 15
U.S.C. § 78j(b)), to "clarify" what kind of relationships could
give rise to a "duty of confidence," Selective Disclosure and
Insider Trading, 64 Fed. Reg. 72,590, 72,590 (proposed Dec. 28,
1999) (codified as amended at 17 C.F.R. § 240.10b5–2). The
resulting rule states that:
[A] "duty of trust or confidence"
exists[, inter alia,] . . . [w]henever 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[.]
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17 C.F.R. § 240.10b5-2.7
In the abstract, one might reasonably question the
extent to which this Rule, including its "knows or reasonably
should know" formulation, could serve as fully applicable in a
criminal proceeding. Here, though, as we have noted, Parigian
waived any objection to the application of that mens rea
formulation. Moreover, the indictment expressly alleges that
Insider and McPhail actually had an understanding, based on their
"history, pattern, and practice," that the information Insider
shared with McPhail "was to remain confidential."
Whether the testimony of McPhail and Insider would have
backed up this lynchpin allegation we do not know, because Parigian
decided to plead guilty. What we can say is that the specific
facts alleged in the indictment render the existence of such an
understanding plausible. Insider was an executive privy to
information that was on its face highly confidential, enough so
that a corporate executive would undoubtedly know that it should
not be broadcast, and arguably would be unlikely to disclose it to
just any casual acquaintance. The disclosures continued over a
7 Parigian briefly states that the SEC "unilaterally expanded
insider trading by creating a new class of
misappropriation . . . ." It is not clear whether this statement
is an observation or the beginning of an argument. If the latter,
it doesn't clear the launch pad: as an argument "adverted to in a
perfunctory manner, unaccompanied by some effort at developed
argumentation," we deem it waived. United States v. Zannino, 895
F.2d 1, 17 (1st Cir. 1990).
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long period of time, and there is no suggestion that Insider
received any indication that McPhail was passing along the
information to others. All of this is enough to plausibly describe
the existence of the requisite duty and its breach and to do so in
a manner that "fairly inform[ed] [Parigian] of the charges against
which he must defend." Yefsky, 994 F.2d at 893.
Parigian also argues that it "would have been
impossible" for him to mount a defense at trial regarding the
nature of the relationship between Insider and McPhail because he
"was not part of that relationship and did not know what the
relationship entailed other than that they were friends and golfing
buddies." Parigian may be correct that any defense to this
indictment--alleging, as it does, a chain of communications among
different pairings of people--would generally be more complicated
than if he had been charged with run-of-the-mill fraud. It is
also true, though, that the prosecution of such an indictment is
more complicated and more difficult than it is in a run-of-the-
mill fraud case. See, e.g., Newman, 773 F.3d 438. Moreover, the
challenge of resisting the government's case differs little from
what defendants routinely shoulder in prosecutions for criminal
conspiracy, for example, in which conspirators can be held
answerable for the conduct of others who share their "common goal"
but are far removed from their own role in the conspiracy. See,
e.g., United States v. Alejandro-Montañez, 778 F.3d 352, 358–60
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(1st Cir.), cert. denied, 135 S. Ct. 2827, 135 S. Ct. 2905, 136 S.
Ct. 92 (2015). In any event, the relevant point is not that
defending against the charges would be complicated, or difficult.
The relevant point is that the indictment "fairly informed"
Parigian of the nature of the charges so that he could then
undertake that defense, whether difficult or not.
That leaves the question of Parigian's awareness of that
breached duty. The indictment expressly claims that Parigian
himself "was aware of the relationship between McPhail and
[Insider] and knew that [Insider] was an executive at AMSC." It
further claims that Parigian "knew or should have known that the
[information disclosed to him by McPhail] was material and
nonpublic and had been disseminated in violation of a fiduciary or
similar duty." The efforts of Parigian to keep the information
secret and delete his emails added grist to the allegation that he
was aware that the dissemination to him had been in breach of a
duty recognized by the law. Whether these allegations would have
been sufficient at trial, we need not say. See Savarese, 686 F.3d
at 7 ("Where . . . a defendant seeks dismissal of the indictment,
the question is not whether the government has presented enough
evidence to support the charge, but solely whether the allegations
in the indictment are sufficient to apprise the defendant of the
charged offense."). We hold only that, collectively, and given
the waiver of any argument about the relevant mens rea standard,
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they were enough to do what an indictment need do on this element
of the charge. See id.
C. Personal Benefit to Tipper
Parigian's second preserved argument focuses on the
presence (or absence) of an anticipated benefit to McPhail from
his tipping. In Dirks, the Supreme Court ruled that under the
classical conception of insider trading liability, a tippee is not
liable under Rule 10b–5 unless the insider "will benefit, directly
or indirectly, from his disclosure." Dirks, 463 U.S. at 662. We
have twice considered in SEC civil enforcement actions the question
whether a benefit to the misappropriator is also a necessary
element to establishing liability for violating Rule 10b-5. See
Rocklage, 470 F.3d at 7 n.4; SEC v. Sargent, 229 F.3d 68, 77 (1st
Cir. 2000).
In Sargent, we noted that the Second Circuit in dictum
appeared dubious that such a benefit need be proven in a
misappropriation case. 229 F.3d at 77. We then dodged the
question, in part, by concluding that if a benefit need be proven,
the government's evidence that the misappropriator and the tipper
were business and social friends with reciprocal interests allowed
a jury to find a benefit in the form of the misappropriator's
"reconciliation with [a] friend" and the maintenance of "a useful
networking contact." Id. In Rocklage, we then held that "[e]ven
if there is a requirement that the tipper receive a personal
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benefit, the mere giving of a gift to a relative or friend is a
sufficient personal benefit" to the giver. 470 F.3d at 7 n.4; see
also Dirks, 463 U.S. at 664 ("The 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.").
Although Sargent and Rocklage were civil actions, the
question at hand--to what extent is benefit to the misappropriating
tipper an element for a Rule 10b-5 violation--would seem to call
for the same answer in both a civil and criminal proceeding (unlike
questions concerning mens rea). Here, the indictment paints
McPhail and Parigian as reasonably good friends. Moreover, the
indictment alleges that McPhail requested--and was promised--
various tangible luxury items in return for the tips. This would
appear to be enough under our precedent.
We do recognize that the Second Circuit itself has
recently adopted a more discriminating definition of the benefit
to a tipper in a classical insider trading case, rejecting as
insufficient the mere existence of a personal relationship "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." Newman, 773 F.3d at 452. Subsequently, the
Ninth Circuit seemed to align itself more closely with our holding
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in Rocklage, and the Supreme Court thereafter granted certiorari
to review the issue. See United States v. Salman, 792 F.3d 1087,
1094 (9th Cir. 2015) ("Proof that the insider disclosed material
nonpublic information with the intent to benefit a trading relative
or friend is sufficient to establish the breach of fiduciary duty
element of insider trading."), cert. granted in part, 136 S. Ct.
899 (2016).
How this will all play out, we do not venture to say
because, as a three-judge panel, we are bound to follow this
circuit's currently controlling precedent. We therefore hold that
the indictment's allegations of a friendship between McPhail and
Parigian plus an expectation that the tippees would treat McPhail
to a golf outing and assorted luxury entertainment is enough to
allege a benefit if a benefit is required.8
D. Personal Benefit to Insider
Parigian further argues that the government was
obligated to allege in its indictment that Insider was also
8 Parigian also asserts that there was no relevant benefit
here because McPhail never actually received (as opposed to
anticipated) the benefit promised him by Parigian and other members
of the golfing group. This assertion is a non-starter:
anticipation of a personal benefit in return for a breach of duty
surely suffices. See Dirks, 463 U.S. at 662 ("[T]he test is
whether the insider personally will benefit, directly or
indirectly, from his disclosure." (emphasis supplied)). Were
actual receipt required, a smart tippee might evade conviction
simply by waiting to dole out the promised benefit until enough
time had passed to suggest that the coast was likely clear.
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expecting a benefit when passing along confidential information to
McPhail in the first instance. But imposing such a requirement in
a misappropriation case would defy logic, because the theory only
applies when the insider expects that the information will not be
misused, and thus will generate no trading benefits to anyone.
See O'Hagan, 521 U.S. at 652.
IV. Conclusion
Because we see no merit in the only arguments in favor
of reversal that Parigian has properly advanced, we affirm the
district court's order denying Parigian's motion to dismiss the
superseding indictment.
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