U.S. v. Geibel

• Decision Date: 28 May 2004
• Docket Number: No. 02-1667.,No. 02-1645(L).,No. 02-1651.,02-1645(L).,02-1651.,02-1667.
• Citation: 369 F.3d 682
• Parties: UNITED STATES of America, Appellee, v. Jon GEIBEL, Chad L. Conner, and Gordon K. Allen, Jr., Defendants-Appellants.
• Court: U.S. Court of Appeals — Second Circuit

369 F.3d 682

UNITED STATES of America, Appellee, v. Jon GEIBEL, Chad L. Conner, and Gordon K. Allen, Jr., Defendants-Appellants.

No. 02-1645(L).

No. 02-1651.

No. 02-1667.

United States Court of Appeals, Second Circuit.

Argued: November 20, 2003.

Decided: May 28, 2004.

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Robert J. Anello, Morvillo, Abramowitz, Grand, Iason & Silberberg, P.C., New York, N.Y. (Daniel L. Rashbaum, Morvillo, Abramowitz, Grand, Iason & Silberger, P.C.; Neil & Harwell, PLC, Nashville, TN, on the brief), for Defendant-Appellant Geibel.

Arza Feldman, Feldman & Feldman, (Steven A. Feldman, on the brief), Hauppauge, NY, for Defendant-Appellant Allen.

Jane Simkin Smith, Millbrook, N.Y., for Defendant-Appellant Conner.

I. Bennett Capers, assistant United States Attorney for the Southern District of New York, (James B. Comey, United States Attorney for the Southern District of New York and Gary Stein, assistant United States Attorney, on the brief), New York, NY, for Appellee.

Before: OAKES, POOLER, and WESLEY Circuit Judges.

POOLER, Circuit Judge.

Defendants-Appellants John Geibel, Chad L. Conner, and Gordon K. Allen, Jr. appeal from judgments of conviction entered on October 29, 2002 in the United States District Court for the Southern District of New York (Daniels, J.) following a three-week retrial. The jury convicted each defendant on each count in which he was named. The Indictment charged defendants with conspiracy to commit insider trading, numerous counts of insider trading, conspiracy to commit commercial bribery, and commercial bribery. On October 18, 2002, the district court sentenced Conner, Allen and Geibel principally to 50, 40 and 36 months incarceration, respectively.

BACKGROUND

In late 1997, John Freeman, employed as a part-time temporary word processor at Goldman Sachs & Co., Inc. ("Goldman Sachs"), a global investment banking and securities firm, and later Credit Suisse First Boston ("CSFB"), another investment bank, began misappropriating nonpublic information concerning impending mergers and acquisitions. Rather than trade in his own account, Freeman disclosed that information to approximately 15 to 20 individuals with the understanding and agreement that they would share a portion of their trading profits with him. Freeman began disclosing inside information to two individuals, James Cooper and Benton Erskine, whom he met in an Internet chatroom. Freeman's agreement with them, like with others, was that he would provide inside information for a percentage of their trading profits. The trio agreed that Freeman would be paid a percentage, which varied from 10%, to 30%, to 50%, of Cooper's and Erskine's trading profits. Freeman initially met with Cooper and Erskine in an AOL chatroom entitled the "YAK chatroom" to provide them with tips. Eventually, Freeman used three different AOL chatrooms, and later, upon growing concerns of detection, communicated with them through instant messaging. To further avoid detection, their communications were sometimes coded.

During the course of the scheme, Cooper received Freeman's permission to tip other individuals that might be able to assist them. Cooper asked and received permission from Freeman to include his brother, Benjamin Cooper, who was an active stock trader. On some occasions, Benjamin would communicate directly with Freeman over the Internet. Cooper also asked and received permission from Freeman to include Charles Deon Benson, a wealthy dentist in Smith Grove, Kentucky. Because Benson frequently traded large amounts of money in the stock market, he could assist the scheme by acting as a middleman to purchase securities.

Cooper, however, also tipped certain individuals without Freeman's knowledge or consent. In September 1997, Cooper contacted defendant Conner, who was a stockbroker at the Bowling Green branch office of Morgan Keegan & Company, Inc. ("Morgan Keegan"), and told him that he met an unnamed source on the Internet who was willing to share inside information for a percentage of the trading profits. Conner indicated that he wanted to receive this information and told Cooper that he knew how to trade on inside information without detection. Conner told Cooper that, for example, Cooper should never purchase more than fifty call options at one time because larger purchases would appear suspicious. He also told Cooper to collect "research" about securities purchased pursuant to Freeman's tips in case they were subsequently questioned about their trades.

Cooper began regularly tipping Conner without Freeman's knowledge. He eventually gave Conner tips on approximately twenty-five prospective deals at Goldman Sachs and CSFB. Conner, in turn, tipped numerous other brokerage clients, including co-defendant Gordon K. Allen, without Cooper's knowledge. Co-defendant Allen, in turn, tipped co-defendant John Geibel and government witness Chan Workman.

Allen and Geibel, both former stock brokers, were partners at Conquest Capital, an oil and gas exploration company in Nashville, Tennessee, and they employed Workman as a bookkeeper. Allen and Geibel engaged in trading through personal brokerage accounts and through joint accounts they shared in the name of their company. Workman testified that Allen instructed him about how to discretely trade on Freeman's information. For example, Allen told him not to purchase more than fifty options at one time. Allen also instructed Workman to compile phony research from the Internet in case their trades were ever investigated. Workman testified that Geibel and Allen both placed calls from Conquest Capital's office to make securities trades using Freeman's tips. He also testified that, in his presence, Allen shared information obtained from Conner with Geibel and that Geibel received checks splitting profits from trades based on Freeman's information. Finally, he testified that Geibel engaged him in speculation about the identity of Conner's source, and eventually deduced that the source was employed at Goldman Sachs in New York.

In November 1997, Morgan Keegan received an inquiry letter from the American Stock Exchange ("AMEX") concerning options that several of Conner's clients, including Cooper, had purchased in the company Oregon Metallurgical Corporation soon before it announced that it was being acquired. Conner told Cooper about the inquiry and directed him to research this corporation over the Internet to fabricate an alternative explanation for the trades. Conner then falsely responded to the AMEX by stating: "After reading about the stock on AOL, the client called and asked my opinion. Upon review of the stock, I told the client technically and fundamentally the stock looked good. Enclosed is a copy of the information the client read on the Internet." Sometime thereafter, Morgan Keegan again received another inquiry letter from the AMEX regarding the purchase of options by some of Conner's clients, including Cooper, in DSC Communications, Inc., shortly before it announced that it was being acquired.

Between September 1997 and Freeman's arrest in January 2000, Freeman received approximately $87,000 in cash as well as other gifts from individuals whom he tipped. Cooper paid Freeman a total of $6,000, of which $4,000 came from Conner. Those payments typically arrived in birthday or greeting cards mailed by Cooper to Freeman at Freeman's daytime job at the Phillip Morris company in New York, New York. The government claims that Allen and Geibel also contributed to payments made to Freeman. Workman testified that Allen solicited contributions from him for one-third of the payment to Freeman. It was his understanding that Allen and Geibel were also each contributing one-third of the payments to Freeman via Conner.

Interestingly, Conner personally traded in only one of the CSFB deals, earning a profit of $2,752. However, according to the government, Conner's tips generated millions of dollars in illegal profits for his friends and business clients. For example, on June 2, 1998, Cooper, Cooper's brother, Allen, Geibel, Workman, and other clients of Conner each made large purchases of securities or options issued by DSC Communications, Inc. Two days later, on June 4, 1998, DSC Communications announced that it was being acquired by Alcatel, Inc., causing DSC's share price to rise significantly. On this deal alone, the government contends that Conner's clients earned profits in excess of a million dollars. Indeed, Workman, whose annual salary ranged between $30,000-$45,000, testified that he earned illegal profits of approximately $140,000 during the course of the two-year scheme.

In the early fall of 1998, Freeman left Goldman Sachs to work part-time for CSFB. While Freeman continued to misappropriate information from CSFB, defendants believed that the information they were now receiving was not as profitable as it had been in the past. Specifically, CSFB's mergers and acquisitions appeared to involve smaller companies, and since stocks in such companies were not heavily traded, defendants could not purchase a large number of options or shares without raising suspicion. Conner complained about this to Cooper and told Cooper that one of his clients was willing to pay the "New York source" $100,000 to return to Goldman Sachs. Cooper communicated this offer to Freeman. Allen advised both Geibel and Workman that Conner was going to offer his New York source $100,000 to return to Goldman Sachs.

Prior to this, Freeman had been apprehended by the FBI and had agreed to assist them. He permitted the FBI to monitor conversations and instant message exchanges with other tippees. Consequently, Cooper was arrested on February 19, 2000 and he also agreed to cooperate with the FBI. On February 23, 2000, defendants Conner and Cooper participated in a three-way telephone and on-line conversation with an FBI agent posing as Freeman. During this telephone conversation, Conner...