U.S. S.E.C. v. Ginsburg

• Court: U.S. Court of Appeals — Eleventh Circuit
• Writing for the Court: Carnes
• Citation: U.S. S.E.C. v. Ginsburg, 362 F.3d 1292 (11th Cir. 2004)
• Decision Date: 19 March 2004
• Docket Number: No. 03-10848.
• Parties: UNITED STATES SECURITIES AND EXCHANGE COMMISSION, Plaintiff-Appellant, v. Scott K. GINSBURG, Defendant-Appellee.

362 F.3d 1292

UNITED STATES SECURITIES AND EXCHANGE COMMISSION, Plaintiff-Appellant, v. Scott K. GINSBURG, Defendant-Appellee.

No. 03-10848.

United States Court of Appeals, Eleventh Circuit.

March 19, 2004.

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John W. Avery, Eric Summergrad, Randall W. Quinnn, SEC, Washington, DC, for Plaintiff-Appellant.

DeMaurice Fitzgerald Smith, David Aaron Becker, Justin R. Rhoades, Everett C. Johnson, Jr., Washington, DC, for Defendant-Appellee.

Appeal from the United States District Court for the Southern District of Florida.

Before EDMONDSON, Chief Judge, and CARNES and DUHÉ^*, Circuit Judges.

CARNES, Circuit Judge:

The SEC brought a civil action against Scott Ginsburg alleging violations of § 10(b) and § 14(e) of the Securities and Exchange Act, 15 U.S.C. §§ 78j(b), 78n(e), and accompanying Rules 10b-5 and 14e-3, 17 C.F.R. §§ 240.10b-5, 240.14e-3. The allegations were that Ginsburg had communicated material nonpublic information to his brother Mark Ginsburg and to his father Jordan Ginsburg regarding EZ Communications, Inc., and Katz Media Group, and that Mark and Jordan had traded on EZ stock using that information.¹

The case was tried to a jury which found that Ginsburg had violated the insider trading provisions. The district court initially ordered him to pay $1,000,000 in penalties but denied the SEC's request to enjoin him from violating securities laws in the future. Later the district court granted Ginsburg's renewed motion for judgment as a matter of law and vacated the judgment against him, because it concluded that the evidence was insufficient to permit a reasonable jury to find that he had tipped off his brother or father about inside information.

The SEC appeals from that judgment as a matter of law, and also contends that if we reverse it, we should direct the district court to enjoin Ginsburg from violating securities laws in the future. In addition to defending the district court's judgment on the specific insufficiency of evidence ground given for it, Ginsburg offers two other grounds for affirming it. First, he contends that even if the evidence is sufficient to show he communicated insider information to Mark or Jordan, it is insufficient to show the information's materiality. Second, he contends the evidence is insufficient to show substantial steps were taken toward a tender offer of Katz, and Ginsburg's knowledge of the tender offer. Finding merit in the SEC's position and none in Ginsburg's, we conclude that the judgment is due to be reversed, the civil penalty reinstated, and an injunction entered against future violations of the securities laws by Ginsburg.

I. FACTS

The nature of a judgment as a matter of law and our review of it is such that we take the evidence at trial in the light most favorable to the party who won before the jury only to have its victory taken away by the court. Russell v. North Broward Hosp., 346 F.3d 1335, 1343 (11th Cir.2003). We draw from the evidence all reasonable inferences in support of the verdict, because the jury could have done so. United States v. Gregory, 730 F.2d 692, 700 (11th Cir.1984).

A. EZ TRANSACTIONS AND CALLS

Ginsburg was chairman and CEO of Evergreen Media Corporation, which owned and operated a number of radio stations. In 1996 Evergreen became interested in acquiring EZ, a corporation that owned radio stations. Ginsburg met with EZ's CEO Alan Box on Friday, July 12, 1996, and Box told him EZ was considering several "strategic alternatives." Before the meeting no decision had been made to sell the company. On Sunday evening, July 14, Ginsburg called Mark at 10:02 p.m., and they spoke for 26 minutes. The next day, Monday, July 15, Mark bought 3800 shares of EZ stock. Mark spoke with Jordan in person and on the telephone over the next few days, and they admit they discussed the purchase of EZ stock.

On July 15, EZ's investment banker called Ginsburg and they discussed the possibility of Evergreen submitting a bid on EZ. Ginsburg asked to be sent a confidentiality agreement that he could sign in order to receive financial information about EZ. He received the confidentiality agreement on July 16. That same day Jordan purchased 20,000 shares of EZ. After signing the confidentiality agreement, Ginsburg received the financial information about EZ on July 17. On July 18, a four minute telephone call was placed from Ginsburg's office to Mark's home.

On July 24, EZ's investment banker faxed a letter to Ginsburg stating that EZ bids were due by July 26. At 7:40 a.m. July 25, a call was placed from Ginsburg's cell phone to his parents' home. Later that day Mark purchased 3200 shares of EZ stock for Mark and his wife's joint account. On July 26, Mark purchased 4300 shares of EZ stock for the same joint account and 7500 shares for a trust account for his son. Also on July 26, Ginsburg, on Evergreen's behalf, submitted a written offer to acquire EZ for cash and stock. On Sunday, July 28, a ten minute call was placed from Ginsburg's home to Mark's home. On Monday, July 29, Jordan bought 5000 shares of EZ stock, and an hour later Mark bought 30,000 shares.

Evergreen's bid for EZ ultimately fell through, but on August 5, 1996, EZ announced its merger with another radio company, at which time the price of EZ stock rose 30%. Between July 15 and July 29, Mark had bought 48,800 shares of EZ and Jordan had bought 25,000 shares, which increased in value $664,024 and $412,875 respectively by August 5, 1996.

B. KATZ TRANSACTIONS AND CALLS

In early 1997, Ginsburg's company, Evergreen, was in the process of merging with Chancellor Broadcasting. On March 20, 1997, Ginsburg attended a meeting with senior executives of Katz Media Group and Hicks, Muse, Tate, & Furst, an investment firm that owned a majority interest in Chancellor Broadcasting, at which a possible acquisition of Katz by Chancellor was discussed. Tom Hicks, Chairman and CEO of Hicks, Muse, appointed a due diligence team headed by Ginsburg. A confidentiality agreement was executed April 7, 1997, and due diligence began. On June 16, 1997, Stuart Olds, a Katz executive, met with Ginsburg. Olds encouraged Ginsburg to call Katz chairman Tom Dean to discuss the purchase of Katz. Olds also told Ginsburg that Katz was having discussions with other companies and Ginsburg would have to act quickly.

That same evening, June 16, a call was placed from a cell phone registered to Ginsburg to a phone registered to Mark. The next day, June 17, Mark bought 150,000 shares of Katz. On July 14, Evergreen/Chancellor announced it would acquire Katz through a tender offer for Katz stock at $11 a share. On July 16 or 17, 1997, Mark sold 132,500 shares of Katz and tendered the rest, resulting in a total profit of $729,000.

II. STANDARD OF REVIEW

We review a decision to grant a motion for judgment as a matter of law de novo, applying the same standards used by the district court. SEC v. Adler, 137 F.3d 1325, 1340 (11th Cir.1998). A judgment as a matter of law is warranted only "[i]f during a trial by jury a party has been fully heard on an issue and there is no legally sufficient evidentiary basis for a reasonable jury to find for that party on that issue." Fed.R.Civ.P. 50(a)(1). That means, as we have already said, that we review the evidence, and the inferences arising therefrom, in the light most favorable to the non-moving party. We "may not weigh the evidence or decide the credibility of witnesses." Adler, 137 F.3d at 1340. However, the nonmoving party "must provide more than a mere scintilla of evidence to survive a motion for judgment as a matter of law." Isenbergh v. Knight-Ridder Newspaper Sales, Inc., 97 F.3d 436, 439 (11th Cir.1996).

We review denial of equitable relief for abuse of discretion. Preferred Sites, LLC v. Troup County, 296 F.3d 1210, 1220 (11th Cir.2002). Any factual findings made by the district court with regard to its denial of an injunction are reviewed for clear error. Id.

III. DISCUSSION

A. JUDGMENT AS A MATTER OF LAW

1. Sufficiency of Evidence that Ginsburg Tipped Mark or Jordan

In order to establish liability under § 10(b) and § 14(e) of the Securities and Exchange Act and accompanying Rules 10b-5 and 14e-3, the SEC must prove that Ginsburg acted with scienter, "`a mental state embracing intent to deceive, manipulate, or defraud.'" SEC v. Adler, 137 F.3d 1325, 1340 (11th Cir.1998) (quoting Aaron v. SEC, 446 U.S. 680, 695-96, 100 S.Ct. 1945, 1955, 64 L.Ed.2d 611 (1980)). Scienter requires that the insider (or tippee, if the trader is not the insider) possess material nonpublic information at the time of the trade. Id. at 1340. In addition, it requires that the material non-public information be used in a trade. Id. Proof of knowledge of such information at the time of a trade "gives rise to a strong inference of use." Id.

The SEC must prove violations of § 10(b) and § 14(e), and their supplementary Rules, by a preponderance of the evidence, and may use direct or circumstantial evidence to do so. Herman & MacLean v. Huddleston, 459 U.S. 375, 390 & n. 30, 103 S.Ct. 683, 691-92 & n. 30, 74 L.Ed.2d 548 (1983). "Circumstantial evidence has no less weight than direct evidence as long as it reasonably establishes that fact rather than anything else." Burrell v. Bd. of Trustees of Ga. Military College, 970 F.2d 785, 788 (11th Cir.1992).

The parties disagree about which body of precedent controls the sufficiency of the evidence issue upon which the district court granted judgment as a matter of law. The sufficiency issue in general involves the circumstances in which it will be inferred from A's act following a conversation with B, who knew a given fact, that A had been informed of that fact when he acted. As it arises in insider trading cases, the more specific issue is when it may be inferred from a trade in stock by A, following a conversation with insider B, that B disclosed inside information to A who acted upon it. The SEC argues,...