fishbein who represents mr peyton are going to split the argument i have five minutes he has six and then we'll take one for rebuttal i'm going to limit my comments and my argument to the issue of duty i e who is the tipper in this case and i'll get to that in a minute mr fishbein is going to address the knowledge of the breach and the middle argument is a personal benefit argument and if we have read more our brief but if martoma stands and we understand it's under on bank consideration at this point if martoma stands we think that personal benefit is satisfied in this case and so i don't want to keep the panel in suspense any more than i have to we believe that michael dallas is the tipper in this case and while this is not a great revelation because we did say that in our briefs the point is michael dallas was a lawyer michael dell's worked for curve ath michael dallas knew he had an obligation of confidentiality to his law firm michael dallas had material nonpublic information about an acquisition that he was working on and michael dallas took that information and had brunch with a friend and gave it to him and he gave him that information because he says he was so stressed out his life was so hard because he was working for a mean part that he had to tell his friend the acquiring company the name of the target the timing of the deal the approximate price and that it was an all cash deal and his friend understood friend understood as he was hearing this information i think michael dallas wants me to trade on this information that's that's what i'm receiving there's some really evidence to vet it but there's also evidence to the contrary isn't there and if there is evidence to the contrary and evidence to that effect isn't that a jury question i don't think so in this case your honor because under ten b five two the law requires this to be viewed from the recipient perspective twenty five to says there has to be a history of confidence that such that the recipient of the information in this case trent martin understood that the information was supposed to be kept confidential so while michael dallas testified that it was his intent for mr martin to keep the information confidential it's really not relevant because it's what martin understood and martin understood initially during that conversation he wants me to trade he then went home and thought about it trade is different for wants me to pass it off understood that it be it seems to me almost inconceivable that a tipper in the position of dallas who passes it on to or to his friend with the intention of the friend trade also wanted him to blair to blurt it out to lots of other people making it all the more likely the balance would be discovered in this indiscretion that's certainly true but there is no specific duty there's no legally cognizable duty that allows michael dallas to say to trent martin look i'm going to allow you to trade on this information that doesn't belong to me but i'm going to impose some fictitious duty that you can't tell other people once michael dallas breaches his duty to provide bath the duty is breached and he doesn't have a legal basis to go to mr martin and say you not allowed to talk and indeed if he really didn't want him to trade and if he cared about this at all he never would have gone back to him a second time and given him more information he went back a second time two weeks later and said oh by the i'm giving you this information it's it's confidential information i'm breaking the law and doing it i'm doing it as a favor to you so that you can make some money because i know you need to make a payment on your mor favor for you but don't pass it on to anybody else is just between you and me you're supposed to you buy yourself a thousand shares but don't pass it on to anybody else you're saying that that that person can then pass it on to other people and there's no liability on their part for trading of they are they are free to trade on the persons who got it from from dallas is to be are free to trade without liability well no we certainly not suggesting that there's no liability down the chain well in this case there is and were in this case mr dallas is the tipper mr martin breached and he and i just i don't i don't understand why that helps your case because the law requires that a breach and duty need to be established and the f c c established duty but they never established breach because they created a fictitious breach between mr martin and mr dallas the breach happened at the law firm level mr dallas owed the duty to the law firm that's where the breach was they're not allowed to and perhaps and to your hypothetical judge they could have said or mr dallas could have said to mr martin don't tell anybody else this and if mr martin said i swear i will never reveal this to another soul than maybe somebody under some law could say that's illegally cognisable duty but that's not what happened he simply said i'm really stressed out and here is my information and then later i was upset that the information got passed on that's not the same thing as of acquiring a promise i can't afford find draw the inference that that martin was breaching the duty in passing it on to other people because there was no evidence that suggested that martin understood that he was supposed to keep this to himself no evidence was suggested i'm sorry refers to draw the inference that he's a dunce though it he understood that he had this information he understood that his friend was giving him confidential information he also understood that it was wrong wouldn't you feel if somebody gave me in from confidential information which was wrong because he was my friend but i wasn't supposed to put into why isn't that in itself it's a duty not to trade and not to tip once you have traded the duty is already gone the duty has already been violated art of the duty has been violated but not the part that not the part of absolutely free to trade on on on on improper tippi information that is not at all our position we're not suggesting that mr martin or mr conrad were free to trade at all we understand that there has been a violation of the insider trading laws here we understand that mr martin and he understood were that he had while in a violation of the insider trading rule of law your clients correct and mr fishbein is going to talk about the knowledge of the breach in this situation if they knew the breach if they knew there was a breach between dallas and the law firm perhaps there is liability here but they didn't know that and he will address that but that's what we get to there is no they've never even a stablished the actual breach they established a fictitious breach because breach is breach you can't have a partial breach of the law either either he had a duty and he reliably did or he didn't reach by trading it was breached by trading and then would one bridge by trading yes and one bridge bypassing the information on yes so you have a bridge by trading and a further breach by passing the information on is but it's a further breach it's not a separate breach it's the same breach in other words mr dallas gives the information away that he's not supposed to give and that's the breach it isn't the breach that mr martin did it's the breach that mr dallas that he was not entitled to take that information and do with it what he pleased it didn't belong to him it belonged to corvette and it belonged to i b m and when he gave it away twice not just once but twice he violated that duty that's the duty that was violated the f c c has created this duty between martin and dallas based on ten b five two but that information is that violation has to be looked at from mr martin's perspective and i see that i am well over my time if there are no further questions i will sit down t joe good afternoon matthew fishbein i represented mr payton at trial i'm going to get to knowledge but i want to start by addressing judge laval's question which was if there was no breach by mr martin wouldn't anyone down the trade beef  down the chain be free to trade and the answer to that is no because with this case ultimately comes down to and it's it's what makes these remote tippi cases problematic is that there needs to be not simply a breach but there needs to be knowledge on the part of the people at the end of the chain the reason it makes a difference here all the joy of knowledge that the information has been attained in violation of a breach of duty in exchange for personal benefit and the reason it makes a difference that the f c c charge this case in correctly here is because charging martin as the tipper as opposed to one step back in the chain dallas being a tip or made the tipping chain one step closer to mr payton and mr  it made their proof of knowledge that much easier because of the way that they charged it now we would argue that they're the it was insufficient evidence of knowledge who ever the tipper is here but the reason it makes a difference that the s e c came up with this fiction that gee you know mr dallas gave this information because he was stressed and not because the parted with him is because it made it closer to to mr did and despite your co counsel i think there is evidence that he did understand if there are things that were said so then we've got to come to what you to tell us that your clients didn't know of that it just before i get to knowledge is briefly in there is the answer to that is there's no honor among thieves you can't disclose the information for one purpose but not for another one know it because you you the if you have breached your duty dallas's breached his duty by imparting information the confidentially tain information for which he got only because he was a lawyer for this client by giving the information to martin to trade he can't say i'm not allow you to trade but i'm imposing a duty on you not to do anything else which he can't selectively disclose to me that that's the normal that's the normal situation if i am a if i am corrupt in this in this respect and i have confidential information from my employer or i b m of undisclosed market information of value and i've got a dear friend who i want to benefit i say to him i want to give you some hot confidential information  the normal expectation would be in that circumstance that the person who's giving the information wants to allow the person who gives it to trade because he wants to to benefit him but he doesn't want him to go blabbing all over the street and telling all of his friends and that's just that's that's that's the normal situation you wouldn't want it because the more this person you gave it to blabs the more likely it is you're going to get caught of course if course your honor that the point is that we're trying to make here is that the breach of the duty the underlying breach that's at the center of this case is one step earlier in the chain but let me get to knowledge because at the end of the day that's record really matters in this case that the evidence here  insufficient to prove that the defendant knew or had reason to know or consciously avoided that the inference not that the information was material nonpublic information but that the information in fact was disclosed in  violation of a breach of duty and i think that's a place where that this court the palace it started with this court's decision in newman because obviously there's been a lot of discussion about newman and personal benefit but as the supreme court made clear in salomon the the core holding of newman which was that there was not sufficient evidence in that case to establish knowledge or even conscious avoidance that holding stand and of all the cases that this can court has addressed the conscious avoidance neuman is the closest in the facts to this case it involved remote it because isn't that because in newman the information was of the sort that might have just been rumor that might have just been speculation rather than he rather than information there were a number of arguments that the  government made to try to establish conscious avoidance in in newman and many of those arguments are similar to the ones that are were made here one of the one of the basis for the court's decision was it said look you may have shown government by the fed by the by the facts that you're arguing here that the defendants knew it was real nonpublic information but there is no evidence to stablish saying that they were put on notice it was obtained properly one of the reasons being is that information about earnings information about potential buyouts information that's material and maybe nonpublic about companies can be  in terms of tax filings isn't that evidence because if they had it is evidence of wrongdoing that they knew that somewhere along the line there was this all that all of those actions took place after the public announcement of the deal and there's no question that at that point the defendants along with the others panicked they understood that because of the size of the trades there was bound to be scrutiny and they they mr peyton opened up a new account to try to move the money so it wouldn't be as easily disclosed but i think i would submit that that's a very little relevance because it all took place after the public announcement and in fact one of the interesting contrast here i'm missing something but let me walk well here's what here's trying to cover up your tracks indicates and it i ndicates awareness of the illegality of your company not necessarily not necessarily but it's a reasonable inference to interpret it that way when you are nothing wrong when you contrast that with the actions that they took before the public announcement and one of them is you mention trading in a stablish in this new account and lying about it i mean interesting lee mr payton traded in his own account in his own name at an account that was open have before us so i think that's why it's very instructive to compare the facts here to to newman because many of the same arguments that the f c c makes here are the judge or a cough or lied on were ones that were made in  that there were the information was specific that it was given just before the public announcement that it was being given frequently all of those aren't that the defendants were sophisticated that they understood the obviously we're not arguing that that's irrelevant but i would say to you that the relevance of that information goes more to the defendants understanding that they had material nonpublic information which by itself violated their firm's policy because their firm's policy was actually stricter than the law firm's policy said if you have material nonpublic information regardless of how you got it you can't trade so they were very much aware that begin given the nature of their profits that they were going to get in trouble with their firm and they took a number of steps no doubt that there are explanations the question remains who did you really have put that together with the things with newman didn't say said we're not sufficient to come up with something that was efficient well i think i do and i think i would say to you that the evidence still remains insufficient to establish knowledge or conscious avoidance of the manner in which the information was obtained i would just in over time i could just make one final observation and that is look not just at newman but look at the other cases that this court has addressed the issue of conscious avoidance in the insider trading context voda go fer whitman are the three leading cases i don't have time to to go through the comparison here but if you look at those cases in each of those three cases the court found it was a sufficient basis for finding conscious avoidance because the facts went beyond simply knowledge of that the information was material and nonpublic there was knowledge or there was information that alerted the defendants to the source of the information and that the manner in which it had been disclosed was improper and so in this case affirming this judgment here would extend insider trading to remote to peace in a way that this court has has never done before and particularly when you factor in that brokers this far removed from the source of the information and the breach their job is they are constantly getting rumors information about about stocks their job is to get that information their job is to trade on it for their clients trade in it for themselves so this court has made clear in the past that in that context when you have remote to ps the only way that they should be held liable is if there is sufficient evidence to show that they were put on notice not just that the information was material and nonpublic but the information had been obtained in breach of a duty thank you it please the court david lisita for the securities and exchange commission now there were competing narratives in this case and a jury resolved and found the defendants civilly liable as  with i believe that the correct conscious avoidance is the major issue we've never quite understood the defense based on the duty here there is a breach of personal benefit even in their most extreme view of the case you still have the defendant's consciously avoiding that someone or a person breached for personal benefit that's the instruction that they were given with regard to conscious avoidance and and you  have very good evidence the core pointed out that martin himself the recipient of the information understood that he had a duty not to tell other people that's had a twenty eight thirty to thirty one in their reply they say oh well we ha admitting that testimony but it was not in their opening brief and they did it just can't bring it up and also with regard to the testimony from dallas the court as part of the analysis of the rule you can look to the  duty that martin the recipient felt based also on the testimony of dallas so that also is evidence that can go to the reasonableness of the duty but would don't really understand why that helps their case and i think it might help to just move to conscious avoidance unless the court has more questions about i have a poorly question which may be one can't answer directly and that is why did you proceed on the theory that acquisitions to his mistress and he wanted to bring a defense and his defense was well my mistress and i have a confidential relationship obviously and i didn't want to trade and this court said well that's a perfectly appropriate theory the jury there did not happen to believe that theory but so in every tipping case we have to answer this question even in the context of an attorney dan simon says which is did the tipper give the information in confidence and they're so they're not really a tipper at all they're not culpable i understand why you could do it but would have been with respect to i mean dallas is with respect to law absolutely absolutely on the commission took the harder path and the reason was because that's where the evidence showed the investigation show that dallas did have this information over in confidence and had we charge instead dallas he would have been able to mount the defense against him had so we had to make an assessment about the evidence as a matter of investigation could he do th firm well i think that if you would provide to all the evidence in this case shows that he would be successful not in that defense because the jury would agree with that version of the facts that that he provided this in for he his defense would be i provided this information to martin in confidence look martin understood that and i understood that and you have this woman's meaning mean intending that he not trade and that he not pass it on that it's just i'm telling you because you're my friend i've got this big problem i'm worried about my work i'm telling you all about it i don't want you to trade you out you're supposed to understand that this is it would be highly illegal for you to trade or pass it on me is like for example to if he if he if he if he went into the confession booth and to his priest he said he said i'm confessing that i have have sinned in my mind because i have contemplated trading on this in fide information i hear that i b m is going to buy s b s s that that would not be a in the legal tip because it was done under circumstances where there was no intent that it go into any illegal is that the the the theory of the case that you cited yes essential way but because the court says as far as the insider trading rules that's perfectly appropriate as far as the ethical rules was no intentional event that the priest trade on it or pass it on i mean certainly the priest case is an easier case but well it's a but it's an extent it's an extension of the theory yes ok but now so let me ask you this  supposing that that i receive that when i go out to dinner tonight somebody says to me i got a great tip i b m is about to make a kid ashu offer of sixty dollars a share s this is very confidential inside information am i free to go and trade on that because because i'm in ignorance i mean under circumstances where we wouldn't this evidence that this is that the totality of the evidence doesn't that evidence support the information in the inference that i knew or suspected knew that there was a high probability that this evidence came from insider sources particularly if i received the information from somebody who's connected with people who work at a big law firms that represent companies like i b m or major securities houses that evidence it seems to me would support the inference that i at least suspected that this information came as a result of somebodies indiscretion and intentional tip as opposed to as opposed to some completely hazardous thing like somebody overhearing through a doctor in the air conditioning con confidential conversations isn't that enough is that not enough to to establish liability of a person who receives that information and trades on it i think that it's that the question of can a person trade on it and it involves a looking at a lot more of the circumstances whatever you started to talk about absolutely a buyout is a different kind of information courts are drawn that distinction you have that evidence here also you have specific testimony by the defendants the thing that we understood that's the kind of information kept tightly under wraps i think you have to look at the register brokers they understand exactly what this means or certain how well reckless circumstances are such that one can draw the inference that the tipi had good reason to believe that this evidence very likely came over not necessarily but very likely came from an illegal tap and a legal disclosure of confidential information yes but i mean we have we have an abundance of such evidence you have are that in that situation so evidence to the contrary the tip or say that i have that says i was sitting behind two law partners in an airplane and they were talking and they got talking about this and i heard of them they didn't know i was rear i just heard them talking about their business and i think that said no would that be enough to say that's they would have to have you know the newman defendants are awash in this kind of information they are powerful in managers they get it from analysts they have this information all this time defendants and with our earnings information out about defendants are working at a brokerage that pitches it's come it's customers to buy gold to get out of u s stocks they don't get the information from an analyst they're not aware not not an analyst would immunize necessarily trading but they're not aware of any kind of analyst in the chain they actually know that they get it from someone who they distrust who they find to be green they also could find out as a new man that this was the kind of information that had been disclosed before the human defendants had this information also from modeling you don't have that kind of evidence here they're not getting this sort of information as part of their routine job they go back for updates which is another crucial piece of evidence they go back and they say hey ask your friend and roommate get us more so it's not overheard on a train but of course that would be another situation is no line why why i understand why you presented the case on an alternate theory from from dallas being the or because you were worried about about a defense that could be raised on that basis but even if dallas was the tip or if if as the information was presented to these defendants the ones who traded there was there was plenty of evidence from which the fact finder could find that they either knew or very likely suspected and preferred not to inquire into the probability the high probability that this was a day and improper disclosure of inside information why isn't that sufficient basis i think that's exactly right and i would also like to point out that there is this sort of accusation that we're shortening the tipping chain but if you accept the proposition a neumann in footnote three that you don't need exact information of the identity of the tipper or the identity of the personal benefit you know our evidence as to their conscious  confidence the did senses available in this circuit under gans and on and so we're not about to charge even if it would be easier to show the duty and the same level of conscious avoidance conference you what you mean by that is is is gave it with the expectation that they would be that they would be no trading and no passing on yes that's right  i really want to make a two points judge of when when you ask if someone receives a specific information about a purpose proposed deal the amount of the the the shares and whatever and you said wouldn't you suspect that that was obtained improperly and you said particularly if you got the information from someone at a big law firm the reason that this case is different is because that's not where our clients got the information they were four levels think was was an experience they did not think very highly of and they treated this as a rumor and in fact they didn't get that sort of specifics that the f c c has alluded to they they were told that it was right for a buyout they were told that i b m was the possible acquirer but they did not get the specific information about the date and the amount until one day before the public announcement which was in fact after day they had trade what i what i think might help to illustrate my point and this will be my final point is this is to look at the following hypothetical and why ultimately this is unfair and arbitrary to hold our clients accountable here suppose you had the exact same facts as you do in this case but with one difference instead of mr dallas giving the information to mark for whatever reason either because he wanted to trade or because he was hoping he was going to keep this deep dark secret but let's say they they didn't know each other and it's the situation that you posit mr morton overhears mr dallas speaking on his cell phone to someone back at her back that he's talking about all of the same details that were in part here the rest of the this case is the same martin tells conrad conrad tells some of his his friends at the brokerage firm and eventually that information gets to our clients it's the exact same situation our clients have the same information they have the same details about the information they have the same knowledge and lack of knowledge that they have in this case and what conclusion do draw in it what i draw from that is that in order for them to be held accountable they have to know more than the fact that this  material nonpublic information swoboda is a great case to look at i think judge will value or on the panel in that case that's a case where the tipi claimed that lack of knowledge the court found there was a basis for conscious avoidance because he got the information directly from the credit officer at the bank who he knew was privy to confidential information there was a three year pattern of giving information and every time the information was given it was miraculously followed right by the fact that there was a material event and to top that all off the the tipper himself testified at trial that in fact he had shared the source of the information whitman and go are similar the court has hesitated to extend liability to remote tip like our clients and refused to do so in newman for that reason where there isn't that type of