United States v. McGee
| Decision Date | 24 July 2013 |
| Docket Number | Criminal Action No. 12–236. |
| Citation | 955 F.Supp.2d 466 |
| Parties | UNITED STATES of America v. Timothy McGEE. |
| Court | U.S. District Court — Eastern District of Pennsylvania |
OPINION TEXT STARTS HERE
Frank R. Costello, United States Attorney's Office, Philadelphia, PA, for United States of America.
Arthur Makadon, John C. Grugan, Christine R. O'Neil, Ballard Spahr Andrews & Ingersoll LLP, Philadelphia, PA, John Joseph Rice, Ballard Spahr LLP, San Diego, CA, for Timothy McGee.
Following the jury's verdict finding him guilty of securities fraud 1 and perjury,2 defendant Timothy McGee moved for judgment of acquittal or, in the alternative, a new trial. We denied his motion and now explain why.
The trial evidence, viewed in favor of the government, was that McGee obtained information from an insider that Philadelphia Consolidated Holding Company (“PHLY”) was about to be purchased by another company for a price three times book value. McGee used the non-public information to trade in the company's stock, which resulted in a substantial profit.3 He contests both that the information was obtained from a source to whom he owed a duty of trust and confidence and that it was disclosed during a conversation subject to such a duty. Essentially, he reasserts his argument, which we rejected in ruling on his motion to dismiss the indictment, that there was no confidential relationship essential to an insider trading offense based upon the misappropriation theory of liability enunciated in United States v. O'Hagan, 521 U.S. 642, 117 S.Ct. 2199, 138 L.Ed.2d 724 (1997).4
In ruling on McGee's motion to dismiss the indictment, we held that a duty could arise from a relationship of trust and confidence, an agreement, or a history and pattern of sharing confidences. United States v. McGee, 892 F.Supp.2d 726, 730 (E.D.Pa.2012). We shall not revisit that holding. Now, we must determine whether the evidence adduced at trial was sufficient to support the conclusion that the defendant is guilty beyond a reasonable doubt. United States v. Smith, 294 F.3d 473, 476 (3d Cir.2002).
In analyzing the evidence, we view it in the light most favorable to the government. United States v. Bobb, 471 F.3d 491, 494 (3d Cir.2006). We are not free to substitute our own determination of the facts and judgment for the jury's. See United States. v. Mercado, 610 F.3d 841, 845 (3d Cir.2010) (citation omitted); United States v. Brodie, 403 F.3d 123, 133 (3d Cir.2005).
McGee argues that the government failed to prove an essential element of insider securities fraud under the misappropriation theory—that he owed a duty of trust and confidence to the insider who provided the information to him. He contends that his relationship with the insider was confined to interacting in the context of their membership and participation in Alcoholics Anonymous (“AA”). McGee characterizes whatever confidentiality there was as unilaterally imposed by the insider and not one that he recognized as existing. He stresses the absence of a business relationship as if that is the only type of relationship that could have engendered the requisite duty of trust and confidence.
Following the Supreme Court's approval of the misappropriation theory in O'Hagan, the SEC promulgated Rule 10b5–2, 17 C.F.R. § 240.10b5–2, to clarify the types of relationships giving rise to a duty of trust or confidence.5Selective Disclosure and Insider Trading, 64 Fed.Reg. 72590, 72602 (Dec. 28, 1999). The Rule codified a non-exhaustive list of “duties of trust or confidence,” the breach of which can form the basis of liability under the misappropriation theory. The duty arises where there is an agreement to keep the information confidential, 17 C.F.R. § 240.10b5–2(b)(1); when the parties of the communication have “a history, pattern, or practice of sharing confidences, such that the recipient of the information knows or reasonably should know that the person communicating the material non-public information expects that the recipient will maintain its confidentiality,” id. at § 240.10b5–2(b)(2); or where the information is shared with a spouse, a parent, child, or sibling. Id. at § 240.10b5–2(b)(3).
McGee contends that the government failed to prove that he and the insider shared a relationship of trust or confidence as defined by Rule 10b5–2(b)(1) and (2), and that the information about the merger was disclosed within the scope of any such relationship. McGee is correct that the essential duty cannot arise out of a mere social relationship or friendship. As we instructed the jury, 6
McGee is not correct that the evidence failed to establish a relationship that went beyond a social one. There was sufficient evidence from which a rational fact finder could have found that a confidential relationship existed and the inside information was disclosed within the confines of that relationship.
In his reply memorandum, McGee argues that there was no evidence that the relationship “involved the exchange of business confidences or, at any point, went beyond confidences relating to sobriety.” 7 There is no question that there was no business or working relationship between McGee and the insider. Nor was there an express agreement.8 But, there was a relationshipof sharing confidences that developed through their joint struggle with alcohol and their participation in the AA program. McGee's relationship with the insider grew in AA. It was developed through the communications he and the insider continued to have as their relationship grew. The insider described and telephone records tended to corroborate how he depended on McGee, who had many years of sobriety.
It was during the course of a conversation about sobriety after an AA meeting that the insider mentioned that the pending merger was causing him stress. In response to McGee's question about why the insider was relapsing, the insider talked about the pending sale of the company for three times bookvalue as creating pressure.9 Thus, a jury could reasonably conclude that this was a confidence disclosed during the insider's discussion about his sobriety.
Alcoholics Anonymous was at the core of the relationship. It is where McGee and the insider first met and where they continued to relate to each other. Although they participated in the same athletic events and shared a group ski trip, they did not socialize. When they saw each other at AA meetings, they would talk afterwards about the program. During these conversations, they shared their experiences and stressors in an effort to maintain sobriety. 10 It was in the context of such a conversation that the insider revealed the stress he was experiencing while dealing with a merger of his company with another.
The insider characterized his relationship with McGee as no different than with any other AA member. It was not social. It was based on the AA program and meetings. 11
According to the insider, whose testimony the jury was free to accept or reject, McGee assured him that he could be trusted. He also testified that the AA program emphasized confidentiality and encouraged members to be truthful in discussions with fellow members. Members were urged to seek advice from members having longer tenure in the program.
McGee's argument compartmentalizes the conversation. He contends that the part of the discussion of the pending merger was about a business matter that did not fall within the ambit of the expected confidentiality. Standing alone, the merger talk could be construed as involving a business matter. However, it was part of a larger discussion about the insider's struggle with maintaining his sobriety. A reasonable jury could conclude that the merger talk was part of the alcohol-related conversation. It was, according to the insider, the cause of his stress. Contrary to McGee's argument, the jury could have reasonably found that the insider was talking about his sobriety. Thus, because sufficient evidence supported the jury's conclusion that the insider's revealing the merger fell within the scope of confidentiality, McGee's motion for judgment of acquittal on the securities fraud count was denied.
McGee claims that his perjury conviction cannot stand alone on the testimony of the insider. He argues that the evidence that he had material non-public information, which he denied having had when questioned under oath by the SEC, came only from the insider's testimony. In summary, he contends the conviction is barred by the two-witness rule.
A conviction for perjury cannot rest on the uncorroborated testimony of a single witness. Weiler v. United States, 323 U.S. 606, 607, 65 S.Ct. 548, 89 L.Ed. 495 (1945). Typically, two witnesses are necessary to prove that the defendant lied under oath. However, a single witness and corroborating non-testimonial evidence may satisfy the two-witness rule. United States v. Neff, 212 F.2d 297, 306 (3d Cir.1954); United States v. Stewart, 433 F.3d 273, 315 (2d Cir.2006). The corroborating evidence must be independent of the testimony of the single witness and inconsistent with the innocence of the defendant. Neff, 212 F.2d at 307. The independent corroborating evidence must be trustworthy enough to convince the jury that what the witness said was true. Weiler, 323 U.S. at 610, 65 S.Ct. 548. Thus, perjury may be established beyond a reasonable doubt when there is direct testimony from one...
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United States v. McGee
...finance his purchase of the 8,250 shares on July 17, 2008, he borrowed approximately $226,000, at 6.875% interest.United States v. McGee, 955 F.Supp.2d 466, 472 (E.D.Pa.2013) (footnotes omitted). Shortly after the sale was publicly announced, the SEC commenced an investigation into McGee's ......