United States v. Bray

• Decision Date: 22 March 2017
• Docket Number: No. 16-1579,16-1579
• Citation: 853 F.3d 18
• Parties: UNITED STATES of America, Appellee, v. Robert H. BRAY, Defendant, Appellant.
• Court: U.S. Court of Appeals — First Circuit

853 F.3d 18

UNITED STATES of America, Appellee,

v.Robert H. BRAY, Defendant, Appellant.

No. 16-1579

United States Court of Appeals, First Circuit.

March 22, 2017

Mark C. Fleming , with whom Emily R. Schulman , Boston, MA, Matthew T. Martens , Daniel Winik , Washington, DC, Alan E. Schoenfeld , New York, NY, Wilmer Cutler Pickering Hale and Dorr LLP , Joseph W. Monahan III , and Monahan & Padellaro , Cambridge, MA, were on brief, for appellant.

Eric P. Christofferson , Assistant United States Attorney, with whom Stephen E. Frank , Assistant United States Attorney, and William D. Weinreb , Attorney for the United States, were on brief, for appellee.

Before Howard, Chief Judge, Souter, Associate Justice,^* and Stahl, Circuit Judge.

STAHL, Circuit Judge.

In what appears to be an ongoing trend, we again encounter a member of the Oakley Country Club ("Oakley"), a private institution located in Watertown, Massachusetts, answering to criminal securities fraud charges.¹ On this occasion, a jury convicted Robert Bray of illegal insider trading after he received material, nonpublic information about a local bank from a fellow Oakley member and then used that information to make a substantial trading profit. On appeal, Bray insists that we set aside his conviction because the government presented insufficient evidence to support the jury's verdict. Bray also maintains that the trial court's instructions allowed the jury to convict him without finding that he possessed the necessary mental state. See 15 U.S.C. § 78ff(a) (requiring the government to prove that a defendant "willfully" violated the securities laws in order to sustain a criminal conviction). After careful review, we reject Bray's arguments and affirm his conviction.

I. Facts & Background

We recite the facts in the light most favorable to the jury's verdict, "reserving the detailed treatment of some points for later in this opinion." McPhail , 831 F.3d at 3. Bray and John Patrick O'Neill first met each other as members at Oakley, a private establishment that provides tennis, swimming, golf, and other social activities to its members. Though the disparity in their respective golf skills meant Bray, a contractor and real-estate developer, and O'Neill, an executive at Eastern Bank ("Eastern"), rarely played together, the two men often socialized with each other in Oakley's pub room and dined on occasion with one another at nearby bars and restaurants. Over time, Bray (or "Bubba," as O'Neill called him) got to know O'Neill's family as well. He took a particular liking to O'Neill's son, Matthew; for example, Bray gifted Matthew his first set of golf clubs as a child, attended his high school graduation party at O'Neill's house, and gave him a $1,000 check as a graduation present. Bray later helped Matthew get an internship with an architect, hired Matthew to prepare architectural drawings for one of his own real-estate projects, and served as a reference when Matthew applied for a job at a restaurant.

Though Bray and O'Neill generally maintained a social relationship, the pair's discussions occasionally drifted toward their professional lives. O'Neill, for instance, had some of Bray's associates refurbish the basement and roof at his house, while Bray often asked O'Neill for stock market and investment advice. In particular, Bray leaned on O'Neill's professional experience and regularly asked him about "what bank stocks [he] liked." O'Neill always answered these questions by advising Bray, based on publicly-available information, to invest in small community banks that were likely merger or take-over targets.

On June 13, 2010, however, O'Neill and Bray had a decidedly different conversation. While they were sitting together in the Oakley pub room, just the two of them, Bray said to O'Neill that he needed to make a "big score" in order to help fund one of his real estate projects (the "Watertown Project") and asked if O'Neill had any "bank stock tips" for him. According to O'Neill, Bray had never sought a "big score" from him before or, for that matter, requested advice based on an express need for money. O'Neill, as he had done in the past, rattled off the names of several local banks. However, this time O'Neill also took a napkin, penned the word "Wainwright" on it, and slid it across the bar toward Bray. As he did so, O'Neill told Bray that "[t]his could be a good one," or at least "something to that effect." Bray wordlessly took the napkin, slipped it into his pocket, and did not mention or ask about its contents for the rest of the night.

At the time, O'Neill knew that Wainwright Bank & Trust Co. ("Wainwright"), a local, publicly-traded bank, had put itself up for sale. This information was nonpublic and Eastern, O'Neill's employer, had told O'Neill to perform due diligence on Wainwright since it was a potential takeover candidate. Before starting that task, O'Neill had signed an agreement with Eastern that required him to keep any nonpublic information he learned about Wainwright confidential. O'Neill did not explicitly inform Bray about this agreement or the source of his Wainwright tip.

When queried at trial as to why he had given Bray this tip, O'Neill answered:

I don't know to this day, although I did want to help out Mr. Bray, he had done stuff for me in the past and for my family and here was an opportunity for me to return the favor. I looked up to Mr. Bray and I figured that doing this would enhance our relationship, he would think more highly of me.

Then, when questioned about whether he expected Bray to "return the favor" someday, O'Neill replied:

Well, we're friends and that's what friends do, they take care of each other. I didn't expect anything at that exact time, but down the road he did offer me an interest in the Watertown project.

The day after receiving the tip, Bray called his broker, E*Trade, to place an order for 25,000 shares of Wainwright stock. Evidence at trial suggested that the size of Bray's trade was most unusual, as at the time of Bray's order, Wainwright was a "thinly-traded" stock with an average daily trading volume of around 1,000 to 2,000 shares. When an E*Trade representative pointed out Wainwright's relative illiquidity, Bray acknowledged that the trade might be "crazy." Nonetheless, Bray proceeded to place the order, though the broker did manage to convince him to structure the trade as a limit order² which spread the trade's execution over multiple days. Over the next two weeks, Bray did two things. First, he liquidated a vast portion of his existing portfolio, generating approximately $555,000. Second, he bought 31,000 Wainwright shares, which amounted to 56% of the stock's total trading volume between June 14th and June 28th. By that point, Wainwright shares comprised around 57% of Bray's securities portfolio.

On June 29, 2010, Eastern publicly announced an agreement to acquire Wainwright for $19 per share, almost double the previous day's closing price. After the announcement, Bray met O'Neill in the Oakley parking lot, thanked him for the tip, and offered to "bring [O'Neill] into the Watertown project." Although Bray had never previously offered O'Neill an opportunity to invest in any of his real-estate projects, O'Neill nevertheless declined the invitation on this first opportunity. When Bray sold his shares under the terms of the acquisition agreement in November 2010, he netted approximately $300,000.

Before Bray sold his shares, O'Neill received an email from Eastern's legal department stating that the Financial Industry Regulatory Authority ("FINRA"), a non-governmental organization that regulates professionals and firms in the securities industry, had initiated an investigation into the trading activity in Wainwright stock that occurred immediately before the June 29th announcement. A list of individuals and companies accompanied the investigatory notice. FINRA asked Eastern to circulate the list to its officers and directors; if any Eastern officer or director recognized a name on the list, FINRA requested that the bank advise it of the nature of the relationship between the employee and the listed name. FINRA also asked that the bank tell it whether any communications among those parties had taken place before the Wainwright announcement.

Seeing Bray's name on the list, O'Neill panicked and rushed to Oakley to look for him. On finding Bray, O'Neill stressed that he could "lose [his] job over this." Bray tried to calm O'Neill down by assuring O'Neill that he had not "told anybody" about the tip and that "if the regulators c[a]me around asking questions," he would "have them wishing that they had bought [Wainwright] stock."³

On August 18, 2014, the Securities and Exchange Commission ("SEC") filed a civil insider trading action against O'Neill and Bray. Bray initially filed a pro se answer where he denied receiving "any ‘tip’ from O'Neill," and later insisted in his answers to the SEC's first set of interrogatories that he had bought Wainwright shares because of the bank's environmentally-friendly policies and good dividends. He later admitted that both these things were untrue, but asserted that O'Neill had passed him the Wainwright tip unprompted.

On December 10, 2014, the government charged Bray with criminal securities fraud in violation of 15 U.S.C. §§ 78j(b) and 78ff(a), and conspiracy to commit securities fraud in violation of 18 U.S.C. § 371. At the close of his trial, the district court instructed the jury on the elements of both offenses. As relevant here, the court told the jury that in order to convict Bray of securities fraud, it needed to find that he "knew or under all the circumstances ... should have known" that O'Neill had breached a duty of confidentiality by giving him the Wainwright tip. Alternatively, the district court told the jury that it could find that Bray possessed the requisite knowledge if he had willfully blinded himself to O'Neill's breach; that is, if "under all the circumstances ... a...