U.S. v. Anderson

• Decision Date: 03 July 2008
• Docket Number: No. 07-2037.,No. 07-1811.,07-1811.,07-2037.
• Citation: 533 F.3d 623
• Parties: UNITED STATES, Appellee/Cross-Appellant, v. James T. ANDERSON, Appellant/Cross-Appellee.
• Court: U.S. Court of Appeals — Eighth Circuit

533 F.3d 623

UNITED STATES, Appellee/Cross-Appellant, v. James T. ANDERSON, Appellant/Cross-Appellee.

No. 07-1811.

No. 07-2037.

United States Court of Appeals, Eighth Circuit.

Submitted: January 15, 2008.

Filed: July 3, 2008.

Mark D. Larsen, argued, Minneapolis, MN, for appellant/cross-appellee.

Timothy C. Rank, Assistant U.S. Attorney, argued, Minneapolis, MN, for appellee/cross-appellant.

Before LOKEN, Chief Judge, MURPHY, Circuit Judge, and JARVEY, District Judge.¹

JARVEY, District Judge.

Defendant James Anderson was convicted of six counts of insider trading and five counts of money laundering arising out of his sales of stock in Zomax Corporation, the company for which he was CEO and chairman of the board of directors. On appeal, he claims that the government's evidence was insufficient to convict him, that the district court² erred in failing to give his theory-of-the-case jury instruction and that he is entitled to a new trial. The United States cross-appealed the district court's order imposing sentence, contending that the sentence is unreasonable because the court erroneously excluded certain stock sales as relevant conduct when considering the U.S. Sentencing Guidelines for illegal insider training. We affirm the defendant's conviction and sentence.

Procedural History

The grand jury for the District of Minnesota returned a thirty-count indictment on August 2, 2005, charging the defendant, his wife Michelle Bedard-Anderson and his friend, Neil Dolinsky. The defendant was charged with conspiracy to commit securities fraud, 18 U.S.C. § 371; six counts of mail fraud, 18 U.S.C. §§ 1341, 1346; seventeen counts of insider trading, 15 U.S.C. § 78j and 17 C.F.R. § 240.10b-5; and six counts of money laundering, 18 U.S.C. § 1957. One of the money laundering counts was dismissed by the government prior to trial.

Trial commenced on May 22, 2006. The case against Neil Dolinsky was dismissed by the government prior to the close of its evidence. Following the close of the government's case, the district court dismissed all charges against Michelle Bedard-Anderson, and granted the defendant's motion for judgment of acquittal on the conspiracy count, the mail fraud counts and ten counts of insider trading. The jury found the defendant guilty of six counts of insider trading and five counts of money laundering. The defendant was sentenced to thirty months imprisonment, a $10,000 fine, restitution in the amount of $1,427,937.50, an $1,100 special assessment and a three year term of supervised release. He forfeited an additional $1,990,000 to the United States.

Factual Background

Defendant James Anderson was a founder of Zomax, a replicator of compact discs and DVDs with headquarters in Plymouth, Minnesota. Zomax's stock traded on the NASDAQ. The case against the defendant focused on events at Zomax between July and September of 2000. Beginning in July 2000, the defendant and other Zomax senior officers began receiving reports from managers at Zomax indicating that the company would fall significantly short of its expectations for third-quarter sales and earnings. On July 17, 2000, Zomax's chief financial officer distributed a report indicating that third-quarter sales would be approximately $60 million, significantly short of the $73 million in sales earlier projected by the board of directors.

Despite this projection, the defendant and other senior officers participated in a telephone conference call on July 24, 2000, with financial analysts from the securities industry. In that call, the defendant claimed to be optimistic about the third quarter and projected sales of just over $75 million.

On August 3, 2000, Zomax's controller prepared a sales report indicating that July sales were approximately ten percent short of Zomax's earlier forecast and that third-quarter sales would be approximately $60 million, as opposed to $75 million as earlier projected by Zomax's general managers. The defendant was one of a few officers in the executive group to receive this report.

Beginning on August 4, 2000, and continuing until September 20, 2000, the defendant liquidated every share of Zomax stock that he and his wife owned. Over 800,000 shares were sold during this period for nearly $14 million. This included the sale of 365,250 shares of Zomax stock held in the name of the defendant and his wife between August 4 and August 24, 2000, for approximately $6,300,000.

On August 17, 2000, the defendant and his wife created a charitable remainder annuity trust ("CRAT"). The trust was funded only with Zomax stock. The trustee of the trust was a certified public accountant with little or no experience as a trustee, who had prepared income tax returns for the defendant and his wife. The defendant directed the CPA to open a brokerage account at Charles Schwab and Company in the name of the trust. The defendant told the trustee he wanted the Zomax stock sold and replaced with municipal bonds.

Between September 6 and September 20, 2000, the trustee sold all 465,000 shares of Zomax stock that had been transferred to the trust. The trustee sold this large block of stock "below the bid" to move the stock faster. Telephone toll records show that the defendant called or attempted to call the trustee on approximately twenty-two occasions during the fourteen days during which the stock was sold. The defendant expressed impatience and annoyance at the inability of the trustee to move the stock faster. However, at the close of the evidence, the district court found that, despite the defendant's involvement, the trustee had acted independently and consistent with his fiduciary duties. All counts relating to the insider trading in the CRAT stock were dismissed.

The day after the final shares of Zomax stock held by the trust were sold, the defendant gave approval to issue a third-quarter press release in advance of the ordinary third-quarter press release, announcing that Zomax would not meet its third-quarter sales and earnings projections. A copy of the press release was sent by facsimile to the Market Surveillance Section of the National Association of Securities Dealers as required when the company believes that the release will affect trading in the stock. Two minutes after receiving the release, the NASDAQ suspended trading on Zomax stock. When trading resumed thirty-seven minutes later, the price of Zomax stock dropped from $17.38 to $9.56. On September 22, 2000, the stock closed at $8.31 per share. By Monday, September 25, 2000, Zomax stock was trading at $6.84 per share.

Zomax had a written policy regarding insider trading which applied to officers, directors and other key management personnel. The policy prohibited trading in Zomax stock on the basis of material, inside information. The policy further required that all trading activity by officers and directors in Zomax stock be cleared in advance by Zomax's chief financial officer and its outside attorney. The defendant knew of the policy and never advised Zomax's CFO or its outside attorney of the sales or obtained clearance from either of them.

Sufficiency of the Evidence

Corporate insiders with knowledge of material, nonpublic information have a duty to either disclose that information or refrain from using it in the sale or purchase of securities. Securities Exchange Act of 1934 § 10(b), 15 U.S.C. § 78j(b) (2007); 17 CFR § 240.10b-5 (2007).³ Section 10(b) is violated "when a corporate insider trades in the securities of his corporation on the basis of material, nonpublic information." United States v. O'Hagan, 521 U.S. 642, 651-52, 117 S.Ct. 2199, 138 L.Ed.2d 724 (1997). This is commonly referred to as insider trading.

This Court reviews the sufficiency of the evidence de novo, "viewing the evidence in the light most favorable to the jury verdict and giving the verdict the benefit of all reasonable inferences." United States v. Birdine, 515 F.3d 842 (8th Cir.2008). "[W]e will reverse only if no reasonable jury would have reached the same result." United States v. Tindall, 455 F.3d 885, 887 (8th Cir.2006). This standard of review is "very strict." United States v. Spencer, 439 F.3d 905, 913 (8th Cir.2006) (quoting United States v. Cook, 356 F.3d 913, 917 (8th Cir.2004)).

Materiality. The defendant contends that the July 17, 2000, report was not "material" information as required by securities law. The defendant cites testimony from various officers and managers of Zomax who, in hindsight, expressed skepticism over the reliability of the sales forecast. The defendant concedes that the controller's August 3rd report contained a forecast for third-quarter revenue of approximately $60 million. Despite the fact that this report contained actual sales revenue from July 2000, the defendant again states that the report was not material because Zomax reports were rarely accurate and because Zomax had prospects for new business that the defendant contends could have made up the $15 million shortfall.

To violate insider-trading laws, the corporate insider must use material, nonpublic information. United States v. O'Hagan, 521 U.S. 642, 652, 117 S.Ct. 2199, 138 L.Ed.2d 724 (1997). Further, "[t]o establish a criminal violation of Rule 10b-5, the Government must prove that a person `willfully' violated the provision" and had knowledge of the rule. Id. at 665-66, 117 S.Ct. 2199. "Fraudulent intent need not be proven directly, but can be inferred from the facts and circumstances surrounding the defendant's actions." United States v. Mooney, 401 F.3d 940, 944 (8th Cir.2005) (citing United States v. Flynn, 196 F.3d 927, 929 (8th Cir.1999)).

Information is material if there is a "substantial likelihood that a reasonable investor would consider it important in making an investment decision." Mooney, 401 F.3d at 945. While speculative or "soft" information is often immaterial, courts have been reluctant to find it per se immaterial. See United States v. Smith, 155 F.3d 1051, 1065 (...