United States v. Contorinis

Decision Date17 August 2012
Docket NumberDocket No. 11–3–cr.
Citation692 F.3d 136
PartiesUNITED STATES of America, Appellee, v. Joseph CONTORINIS, Defendant–Appellant.
CourtU.S. Court of Appeals — Second Circuit

OPINION TEXT STARTS HERE

Roberto Finzi (Theodore V. Wells, Jr., Mark F. Pomerantz, & Farrah R. Berse, on the brief), Paul, Weiss, Rifkind, Wharton& Garrison LLP, New York, NY, for DefendantAppellant.

Andrew L. Fish, Assistant United States Attorney (Reed M. Brodsky, Assistant United States Attorney on the brief), for Preet Bharara, United States Attorney for the Southern District of New York, New York, NY, for Appellee.

Before: WINTER, HALL, and CHIN, Circuit Judges.

WINTER, Circuit Judge:

Joseph Contorinis appeals from his conviction by a jury before Judge Sullivan for conspiracy to commit securities fraud and insider trading and from the district court's forfeiture order in the amount of $12.65 million. Appellant claims error in: (i) a jury instruction that allegedly did not adequately convey the definition of material, nonpublic information; (ii) the admission of evidence of contemporaneous trades by individuals who received inside information from the same source as appellant; and (iii) the amount of the forfeiture order entered by the district court. We hold that the district court properly instructed the jury on the definition of material, nonpublic information and acted within its discretion in admitting evidence concerning the trades by other individuals. However, we conclude that the court erred in ordering appellant to forfeit gains acquired by his employer but not by him. We therefore affirm appellant's conviction but vacate the forfeiture order and remand for further proceedings.

BACKGROUND

Given the jury's verdict, we view the evidence and inferences drawn therefrom in the light most favorable to the government. United States v. Chavez, 549 F.3d 119, 124 (2d Cir.2008).

During the relevant time period, appellant was employed, with Michael Handler, as a co-portfolio manager of the Jeffries Paragon Fund (“Fund”). The Fund invested in companies in the retail and personal products sectors. As portfolio managers, Handler and appellant made investment decisions but did not control disbursements of profits.

Sometime in 2000, appellant met and befriended Nicos Stephanou, who became an investment banker in the Mergers and Acquisitions group at UBS in 2002. Thereafter, appellant and Stephanou spoke on the telephone often, sometimes as much as 75 times a month. Stephanou regularly provided confidential information to several friends. These “tippees” included a California employee of a semiconductor company, an individual working in an import/export business in New York, and two individuals living in Cyprus.

On September 2, 2005, Albertsons grocery store chain (“ABS”) announced that it was exploring options to increase shareholder value, including a possible sale of the company. Appellant then purchased a large amount of ABS stock on behalf of the Fund. On the same day, Stephanou was assigned to a team at UBS that was to represent a potential purchaser of ABS. Stephanou testified that he informed appellant of his role, and that appellant asked Stephanou to keep him informed about the deal.

Subsequently, on November 22, Stephanou received information suggesting that it was then more likely than not that an acquisition of ABS would occur. Stephanou conveyed that information to appellant and his other friends. On the same day, appellant purchased 250,000 shares of ABS on behalf of the Fund. He testified that this purchase was motivated by a worse than expected earnings report by ABS. Stephanou's other tippees also purchased shares around this time.

On December 6, Stephanou learned that the likelihood of the deal had been drastically reduced. Nevertheless, appellant purchased 126,000 shares of ABS the following morning. He testified that he believed that offers at the end of the bidding period, December 7, the next day, would increase the stock price. Appellant became unavailable for a few hours, and Handler began to sell ABS stock. Handler testified that he sold the stock because he mistakenly believed the bidding period was over. When appellant became available, appellant continued to sell. The Fund sold the vast majority of its position in ABS on December 7, closed out its long position on December 8, and then briefly went short. Appellant made the lion's share of these trades. The other tippees also closed out their positions in ABS during the same time frame.

On December 9, Stephanou was told that the deal was back on and could be announced on the 19th. That day Stephanou purchased shares of ABS, and several of his tippees did as well. Two days later, Stephanou was involved in a conference call discussing the details of the proposed transaction. Immediately following that call, Stephanou spoke with appellant, and the Fund purchased over $38 million of ABS the next day.

Stephanou testified that he learned on December 17 that the deal was going to happen and would be announced later in the week. Phone records showed that Stephanou spoke with appellant several times over the next two days. The Fund purchased over 300,000 shares of ABS between December 19 and 20. On December 21, several media outlets reported that talks had broken down and that the deal was unlikely to occur. Stephanou testified that he repeatedly relayed information about the deal to appellant. Phone records showed several calls between the two during this time. Until the media reports, the details looked positive, but ultimately it was determined that antitrust concerns in the Chicago market would hold the deal up. Stephanou then advised appellant that the transaction was not going forward. The next day, December 22, Stephanou sold his position in ABS, shorted the stock, and advised appellant and the other tippees of the moribund status of the deal. The Fund also sold all of its stock in ABS, and the other tippees did the same. However, media reports in the morning of December 22 stated only that the deal was uncertain, but not necessarily dead. Only after the markets closed on December 22, and Stephanou, his other tippees, and the Fund had sold all their ABS shares, did ABS announce that talks about the sale had been terminated. ABS stock dropped in price significantly the next morning.

In late December and into early January 2006, Stephanou received reports that the acquisition of ABS was back on track. In response, he purchased ABS stock on January 11. He also informed appellant that the deal was gaining traction and that a transaction would likely be announced in the coming weeks. On that day, appellant purchased approximately 1.1 million shares of ABS stock for the Fund. Stephanou's other tippees also bought ABS stock at this time. In his testimony, appellant attributed the purchase to a belief that comments by the CEO of one of the would-be purchasers implied that ABS would be acquired. On January 12, appellant purchased 900,000 additional shares of ABS. Then, on January 13, the New York Post announced that negotiations had reopened and the Fund purchased another 200,000 shares, bringing its holdings to over 2.3 million shares. The Fund sold 500,000 shares two days later but then repurchasedthem the following day. Finally, the sale of ABS was announced on January 23 and the Fund sold its entire ABS holdings that day, reaping a net profit of approximately $3 million through its December and January trades. Stephanou testified that, beginning in September, 2005, and ending in January, 2006, he had kept appellant informed of the status of the deal and expected date of the announcement.

Prior to trial, appellant objected to evidence about the trades of Stephanou's other tippees. In denying appellant's motion to exclude that evidence, the court stated that it had considered the parties' arguments concerning district court opinions in United States v. Marcus Schloss & Co., Inc., 710 F.Supp. 944 (S.D.N.Y.1989) (excluding evidence of trades by others), and United States v. Ballesteros Gutierrez, 181 F.Supp.2d 350 (S.D.N.Y.2002) (admitting such evidence), and concluded that the reasoning in Ballesteros was more fitting in this case. The court found that the trading patterns of the other tippees were probative because they tended to show that the trades of the tippees were more consistent with the sharing of inside information than with independent investment decisions. Based on the balancing done in Ballesteros, the court saw no reason to exclude the evidence under Rule 403 but stated that it was open to a limiting instruction. No such instruction was requested.

Appellant also objected to the jury charge on the basis that the court's definition of “material, nonpublic information” did not adequately explain when confirmation of publicly known or rumored information can be considered material and nonpublic.

The jury found appellant guilty of conspiracy and insider trading on the counts relating to the trades made on December 22 and January 11. Appellant was sentenced to 72 months' imprisonment and was ordered to forfeit approximately $12.65 million—the profits made by the Fund on appellant's trades in his capacity as agent of the Fund.

This appeal followed.

DISCUSSION
a) Jury Instructions

We review jury instructions de novo to determine whether the jury was misled or inadequately informed about the applicable law. Henry v. Wyeth Pharm., Inc., 616 F.3d 134, 146 (2d Cir.2010).

As pertinent here, the crime of insider trading required the government to prove beyond a reasonable doubt that Stephanou had a duty to UBS not to convey material, nonpublic information about deals in progress to outsiders, See Dirks v. SEC, 463 U.S. 646, 662, 103 S.Ct. 3255, 77 L.Ed.2d 911 (1983), and that appellant received such material, nonpublic information in breach of that duty and used the information to trade relevant securities, see id. That Stephanou had the requisite...

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