Sec. & Exch. Comm'n v. Payton

• Decision Date: 04 April 2016
• Docket Number: 14 Civ. 4644
• Parties: Securities and Exchange Commission, Plaintiff, v. Daryl M. Payton, and Benjamin Durant, III, Defendants.
• Court: U.S. District Court — Southern District of New York

176 F.Supp.3d 346

Securities and Exchange Commission, Plaintiff,

v.Daryl M. Payton, and Benjamin Durant, III, Defendants.

14 Civ. 4644

United States District Court, S.D. New York.

Signed April 4, 2016

Filed April 5, 2016

A. Kristina Littman, Catherine Eleni Pappas, G. Jeffrey Boujoukos, Sharon Blaskey Binger, David Lawrence Axelrod, Scott A. Thompson, U.S. Securities and Exchange Commission, Philadelphia, PA, for Plaintiff.

Ada Fernandez Johnson, Jonathan Rosser Tuttle, Laura Emily O'Neill, Debevoise & Plimpton LLP, Washington, DC, Sean Hecker, Kaitlin Teresa Farrell, Matthew E. Fishbein, Rushmi Bhaskaran, Debevoise & Plimpton, LLP, Noam B. Greenspan, Petrillo Klein & Boxer LLP, Gregory Robert Morvillo, E. Scott Morvillo, Nicole Renee Lloret, Robert Craig Morvillo, Morvillo LLP, Eugene Edward Ingoglia, United States Attorney's Office, Peter Simpson Ross, New York, NY, for Defendants.

OPINION AND ORDER

JED S. RAKOFF

, UNITED STATES DISTRICT JUDGE.

In February 2016, Daryl M. Payton and Benjamin Durant, III stood trial on insider trading charges brought by the Securities and Exchange Commission (“SEC”). The SEC alleged that in 2009, defendants Payton and Durant traded on material, non-public information about IBM's pending acquisition of SPSS, Inc. (“SPSS”). SeeAmended Complaint, Dkt. 32, ¶ 1. On February 29, 2016, the jury held both defendants liable. See Verdict, Dkt. 136. During the trial, the issue arose of whether M r. Payton gave trial testimony that materially conflicted with the allocution he provided while entering a guilty plea (now vacated) in a parallel criminal case. Accordingly, the Court conducted an inquiry into the matter (see infra) and invited both defendant Payton and the SEC to submit letters after trial on whether the Court should refer Mr. Payton to the U.S. Attorney's Office for a possible perjury prosecution. See Letter dated March 3, 2016 (“Payton Post-Trial Letter”); Letter dated March 7, 2016 (“SEC Post-Trial Letter”). (These letters will be docketed along with this Opinion.)

Having considered the parties' submissions, Mr. Payton's testimony and demeanor at trial, and the prior history of the case, the Court, while deeply troubled by the material inconsistencies in Mr. Payton's statements given under oath, hereby decides not to formally refer Mr. Payton to the U.S. Attorney's Office for a possible perjury prosecution. This does not negate the possibility, however, that the U.S. Attorney's Office may on its own wish to investigate possible perjury by Mr. Payton; and plaintiff SEC, like any party, is free to bring this issue to the attention of the U.S. Attorney. However, a court should hesitate before making such a formal referral, given the weight that such a referral may have.

Nonetheless, in this case, the decision not to make a referral was not easily reached, and the Court finds it instructive to review the facts and principles that have informed its decision. The federal perjury statute here relevant, 18 U.S.C. § 1623

, states that “[w]hoever under oath ... in any proceeding before or ancillary to any court or grand jury of the United States knowingly makes any false material declaration ... shall be fined under this title or imprisoned not more than five years, or both.” 18 U.S.C. § 162 3(a). This statute, technically called the “False Declarations” statute, was designed to supplement the earlier perjury statute, 18 U.S.C. § 1621, by eliminating some of the historic hypertechnicalities with which the earlier statute was fettered. In both cases, however, the federal perjury statutes aim to “keep the course of justice free from the pollution of perjury,” United States v. Williams, 341 U.S. 58, 68, 71 S.Ct. 595, 95 L.Ed. 747 (1951), since “[p]erjury is an obstruction of justice; its perpetration well may affect the dearest concerns of the parties before a tribunal.” United States v. Norris, 300 U.S. 564, 574, 57 S.Ct. 535, 81 L.Ed. 808 (1937). As the Second Circuit has explained, “[n]o legal system can long remain viable if lying under oath is treated as no more than a social solecism. Swearing to tell the truth is a solemn oath, the breach of which should have serious consequences.” United States v. Cornielle, 171 F.3d 748, 753 (2d Cir.1999).

Despite the seriousness of perjury, “it is undoubtedly the case that a good many untruthful statements occur during the course of a civil trial.” Cornielle, 171 F.3d at 751

.¹ Though criminal prosecutions have been brought for perjury in civil cases, see, e.g., United States v. Thompson, 29 F.3d 62 (2d Cir.1994)

, United States v. Kross, 14 F.3d 751 (2d Cir.1994), still, “the instances in which perjury in civil cases is prosecuted criminally are relatively rare.” Miller v. Time – Warner Commc'ns, Inc., 97–cv–7286, 1999 WL 739528, at *3 (S.D.N.Y. Sept. 22, 1999). One explanation is that “many such falsehoods essentially are resolved by adverse jury verdicts, leaving for criminal prosecution those few instances where a witness' lie is so material to the truth-seeking function of a trial that the prosecutor (sometimes, upon the referral of the trial judge) elects to seek an indictment.” Cornielle, 171 F.3d at 751. And yet the very fact that prosecution for perjury committed in a civil case is rare doubtless encourages civil litigants to believe they can lie with impunity. See Marvin E. Frankel, The Adversary Judge, 54 Tex. L. Rev. 465, 483 (1976).

Against this background, the Court turns to the factual and procedural history of the instant case. On June 25, 2014, the SEC filed suit against defendants Payton and Durant, contending that the defendants had violated the laws against insider trading by trading in SPSS securities ahead of IBM's acquisition of SPSS. See Complaint, Dkt. 2, ¶ 1. On October 29, 2014, Messrs. Payton and Durant were indicted in a parallel criminal case in front of Judge Andrew Carter on one count of conspiracy to commit securities fraud and multiple substantive counts of securities fraud (three in Mr. Payton's case, and two in Mr. Durant's case). See United States v. Conradt et al., 12-cr-887 (ALC), Dkt. 95² (Superseding Indictment). On November 6, 2014, Mr. Payton pled guilty in front of Judge Carter to conspiracy to commit securities fraud. See Transcript of Proceedings dated Nov. 6, 2014, 12-cr-887, Dkt. 105 (“Payton Plea Tr.”). After being placed under oath, see Payton Plea Tr. 12:20-22, Mr. Payton allocated as follows:

In July of 2009 I was working as a stockbroker for a brokerage firm in Manhattan. One of the brokers at the brokerage firm told me his roommate told him that IBM would soon be acquiring a software company called SPSS at a specific price per share and that we should invest in this stock. I understood that once this acquisition was announced, the price of SPSS shares would rise dramatically. I purchased, from Manhattan, on a national securities exchange, options of SPSS based on this information. After the deal was announced I sold my options for a profit.

Given the specificity of the information, it was apparent that this information was obtained in breach of fiduciary duty. In other words, I understood that this was inside information that was supposed to be kept confidential and that it was illegal for me to trade on.

I apologize and I am very sorry for my actions.

THE COURT: And this activity, was this done pursuant it [sic] an agreement that you had with some other people?

(Defendant and counsel conferring)

THE DEFENDANT: An understanding? Yes. Yes, your Honor.

Payton Plea Tr. 28:13-29:8.

After further discussion with counsel, the Court asked M r. Payton some follow-up questions:

THE COURT: ... You indicated that you felt the information had been provided in breach of a fiduciary duty because of the specificity of the information; is that correct?

THE DEFENDANT: Yes, your Honor.

THE COURT: Tell me a little bit more about that.

THE DEFENDANT: Just that he specified that the company, IBM, would be the likely acquirer of SPSS-sorry, that he spoke to IBM about specifically purchasing SPSS at a particular share price.

THE COURT: When you say “he,” who [m] are you talking about?

THE DEFENDANT: Tom Conradt.

Payton Plea Tr. 35:16-36:3.

After receiving subsequent letters from the parties on the sufficiency of Mr. Payton's guilty plea, Judge Carter accepted his plea at a conference held on November 18, 2014. See Transcript of Proceedings dated Nov. 18, 2014, 12-cr-887, Dkt. 146, 5:6-9. However, on December 10, 2014, the Second Circuit issued its decision in United States v. Newman, 773 F.3d 438 (2d Cir.2014)

, raising issues about personal benefit to the tipper and about the tippee's knowledge of such benefit that were not part of Mr. Payton's allocution. At a status conference on December 18, 2014, Judge Carter stated that in light of Newman, he was inclined to vacate Mr. Payton's plea on the ground that there was an insufficient factual basis for the plea. See Transcript of Proceedings dated Dec. 18, 2014, 12-cr-887, Dkt. 143, 49:16-20. Judge Carter had the same view of the guilty pleas of Mr. Payton's co-defendants Trent Martin, Thomas Conradt, and David Weishaus. See id. at 24:22-25:1; 29:15-17: 41:24-42:3. Mr. Durant, however, had pled not guilty, so he was not implicated by Judge Carter's remarks.

On January 12, 2015, the Government submitted a brief to Judge Carter arguing that the defendants' guilty pleas were sufficient. See The Government's Memorandum of Law in Support of the Sufficiency of the Defendants' Guilty Pleas, 12-cr-887, Dkt. 153. On January 16, 2015, Mr. Payton moved to vacate his guilty plea, arguing that he had never admitted that he knew that the tipper had received a personal benefit, as Newman

required. See Memorandum in Support of Daryl Payton's Motion to Vacate His Guilty Plea, 12-cr-887, Dkt. 154, at 2-3. On January 22, 2015, Judge Carter vacated Mr. Payton's guilty plea (as well as the pleas of Messrs. Conradt, Martin, and Weishaus). See Order dated Jan. 22, 2015, 12-cr-887, Dkt. 166. Soon after, on January...