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Federal Criminal Law

Insider Trading & the Rule of Law

Short video featuring Thaya Brook Knight
Thaya Brook Knight November 10, 2016

Insider trading is a serious crime, yet why is there no statute that explicitly prohibits it? Thaya Brook Knight of the Cato Institute explains how the courts have developed an understanding of Section 10b of the Securities and Exchange Act, implemented by the SEC in Rule 10b-5, to prohibit insider trading—and how that creates uncertainty in criminal law.

Salman v. United States - Post-Argument SCOTUScast

SCOTUScast 11-3-16 featuring Thaya Brook Knight
Thaya Brook Knight November 03, 2016

On October 5, 2016, the Supreme Court heard oral argument in Salman v. United States. Bassam Yacoub Salman was convicted in a jury trial of conspiracy to commit securities fraud, as well as several counts of actual securities fraud. The government’s theory was that Salman, whose brother-in-law Mounir Kara (along with Mounir’s older brother Maher Kara) worked for Citigroup, had coordinated with Mounir in an insider trading scheme that, over the course of just a few years, grew a $396,000 brokerage account controlled by Salman into one worth more than $2 million.

Salman moved for a new trial, arguing that there was no evidence he knew that the tipper had disclosed confidential information in exchange for a personal benefit. The district court denied the motion. Salman made a similar argument to the U.S. Court of Appeals for the Ninth Circuit on appeal, urging the Court to adopt the then-recently established standard set out by the Second Circuit in United States v. Newman. Under Newman, the government must present sufficient evidence that the accused knew the “inside” information he received had been disclosed in breach of a fiduciary duty. Invoking its precedent in Dirks v. SEC, the Ninth Circuit rejected Salman’s challenge, holding that the close familial relationship between Salman and the Karas was sufficient to sustain Salman’s convictions.

The question now before the Supreme Court is whether the personal benefit to the insider that is necessary to establish insider trading under Dirks requires proof of “an exchange that is objective, consequential, and represents at least a potential gain of a pecuniary or similarly valuable nature,” as the Second Circuit held in Newman, or whether it is enough that the insider and the tippee shared a close familial relationship, as the Ninth Circuit held here.

To discuss the case, we have Thaya Brook Knight, who is associate director of financial regulation studies at the Cato Institute.
 

Mathis v. United States - Post-Decision SCOTUScast

SCOTUScast 8-18-16 featuring Richard E. Myers II
Richard E. Myers August 18, 2016

On June 23, 2016, the Supreme Court decided Mathis v. United States. The Armed Career Criminal Act (ACCA) imposes a 15-year mandatory minimum sentence on a defendant convicted of being a felon in possession of a firearm who also has three prior state or federal convictions “for a violent felony,” including “burglary, arson, or extortion.” To determine whether a prior conviction is for one of those listed crimes, courts apply a “categorical approach”—they ask whether the elements of the offense forming the basis for the conviction sufficiently match the elements of the generic (or commonly understood) version of the enumerated crime.

Here, petitioner Richard Mathis pleaded guilty to being a felon in possession of a firearm. Because he had five prior Iowa burglary convictions, the Government argued for the 15-year minimum.  Generic burglary requires unlawful entry into a “building or other structure.” The Iowa statute under which Mathis was convicted, however, also extended to “any... land, water, or air vehicle.”  The District Court determined based on the case record that Mathis had burgled structures and imposed the 15-year ACCA minimum. The U.S Court of Appeals for the Eighth Circuit affirmed. 

By a vote of 5-3, the Supreme Court reversed the judgment of the Eighth Circuit. Justice Kagan delivered the opinion of the Court, which held that because the elements of Iowa’s burglary law – which applies to “any building, structure, [or] land, water, or air vehicle” – were broader than those of generic burglary, Mathis’ prior convictions under the Iowa burglary law could not give rise to an ACCA sentence. Justice Kagan’s majority opinion was joined by the Chief Justice and Justices Kennedy, Thomas, and Sotomayor. Justice Kennedy also filed a concurring opinion. Justice Thomas filed a concurring opinion. Justice Breyer filed a dissenting opinion, in which Justice Ginsburg joined. Justice Alito also filed a dissenting opinion.

To discuss the case, we have Richard E. Myers II, who is Henry Brandis Distinguished Professor of Law at University of North Carolina School of Law.

Voisine v. United States - Post-Decision SCOTUScast

SCOTUScast 8-18-16 featuring David Kopel
David B. Kopel August 18, 2016

On June 27, 2016, the Supreme Court decided Voisine v. United States. Stephen Voisine was convicted in 2003 of assaulting a woman with whom he was in a domestic relationship--a misdemeanor violation of a Maine statute. In 2009 Voisine turned a rifle over to federal officials who were investigating him for a separate alleged crime. When investigators discovered Voisine’s 2003 misdemeanor assault, they charged him under 18 U.S.C. § 922(g)(9), which makes it a federal crime for a person “who has been convicted in any court of a misdemeanor crime of domestic violence” to “possess in or affecting commerce[] any firearm or ammunition.” In turn, a "misdemeanor crime of domestic violence" is defined in § 921(a)(33)(A) as an offense that (1) is a misdemeanor under federal, state, or tribal law, and (2) “has, as an element, the use or attempted use of physical force … committed by a current or former spouse, parent, or guardian of the victim” or by a person in a similar domestic relationship with the victim.

Voisine challenged the § 922(g)(9) charge, arguing that under his Maine conviction offensive physical contact, as opposed to one causing bodily injury, was not a “use of physical force” and thus not a “misdemeanor crime of domestic violence” within the meaning of § 921(a)(33)(A). The district court rejected this argument and Voisine pled guilty on condition that he be able to appeal the court’s ruling. The U.S. Court of Appeals for the First Circuit affirmed the district court’s judgment, but the Supreme Court subsequently granted Voisine’s petition for certiorari, vacated the First Circuit’s judgment, and remanded the case for reconsideration in light of the intervening 2014 Supreme Court decision United States v. Castleman. That decision held the requirement of “physical force” satisfied, for purposes of § 922(g)(9), by the degree of force that supports a common-law battery conviction--but it did not resolve whether a conviction with the mens rea of reckless--as under the Maine statute--would qualify. On remand, the First Circuit again rejected Voisine’s challenge and held that his Maine conviction qualified as a “misdemeanor crime of domestic violence.”

The Supreme Court again granted certiorari, and affirmed the judgment of the First Circuit by a vote of 6-2. Justice Kagan delivered the opinion of the Court, which held that a reckless domestic assault qualifies as a "misdemeanor crime of domestic violence" that prohibits firearms possession by convicted felons under 18 U.S.C. § 922(g)(9). The majority opinion was joined by the Chief Justice and Justices Kennedy, Ginsburg, Breyer, and Alito. Justice Thomas filed a dissenting opinion, in which Justice Sotomayor joined as to Parts I and II.

To discuss the case, we have David Kopel, who is Adjunct Professor at University of Denver, Sturm College of Law.

Puerto Rico v. Sanchez Valle - Post-Decision SCOTUScast

SCOTUScast 8-18-16 featuring Lance Sorenson
Lance Sorenson August 18, 2016

On June 9, 2016, the Supreme Court decided Puerto Rico v. Sanchez Valle. Sanchez Valle was charged by Puerto Rico prosecutors with the illegal sale of weapons and ammunition without a license in violation of Puerto Rico law. While that charge was pending, he was indicted by a federal grand jury for the same offense, based on the same facts, under federal law. He pled guilty to the federal indictment but sought dismissal of the Puerto Rico charges on Double Jeopardy grounds, arguing that Puerto Rico is not a separate sovereign. The Supreme Court of Puerto Rico agreed but the Commonwealth appealed. The question before the U.S. Supreme Court was whether the Commonwealth of Puerto Rico and the federal government are separate sovereigns for purposes of the Double Jeopardy Clause of the United States Constitution.

By a vote of 6-2, the U.S. Supreme Court affirmed the judgment of the Supreme Court of Puerto Rico. Justice Kagan delivered the opinion of the Court, which held that the Double Jeopardy Clause bars Puerto Rico and the United States from successively prosecuting a single person for the same conduct under equivalent criminal laws. The majority opinion was joined by the Chief Justice and Justices Kennedy, Ginsburg, and Alito. Justice Ginsburg filed a concurring opinion, in which Justice Thomas joined. Justice Thomas filed an opinion concurring in part and concurring in the judgment. Justice Breyer filed a dissenting opinion, in which Justice Sotomayor joined.

To discuss the case, we have Lance Sorenson, who is the Olin-Searle Fellow in Constitutional Law at Stanford University.