morning or others may please the court rudders this case is extraordinary then chad was convicted of insider trading in the southern district of new york but he never stepped foot in the southern district he never traded any shares himself or did he receive anything that's done a fifty dollars as a personal benefit but funds to a simultaneous duty to lattice base an n d a it's the chap signed on behalf of the funds that theory is entirely novel and the government's broader legal claim that any n d a is sufficient to impose a duty for insider trading purposes is with all due respect entirely wrong wouldn't it be mr common overruling our past precedent we've said over and over again that an explicit acceptance of the duty of confidentiality is sufficient type an n d a will satisfy when we've said in the past an explicit except of the duty of confidentiality is official with respect your honor i don't think that's the holding of any of those cases and i think most of those cases you know and certainly which one of those duty which is a duty relationship of trust and confidentiality and what the government wants to do and there's no sport it not in this circuit or any other circuit is to say that it duty of a country track duty of confidentiality alone suffices and that's fundamentally wrong with all due respect i mean there's no precedent for it i mean let me just quote falconer reduce your relationship or it's functional equivalent exists only where there is an explicit acceptance of a duty of confidentiality an employment relationship and if you look at the cases all of them look if they wanted to bring this case based on the theory that chalo a fiduciary duty to the funds it would fit all within the structure of the relationship if two of us are investing together i'm going to give you some information i'm going to do it in service of our joint efforts but that's not the situation when you have an arm's length negotiation when you're in arms like that they're not and trusting this information to out so that he can use it for lattices benefit they're in trusting it to check out so he can do the due diligence on behalf of the funds and so of course he owes a duty to the funds but he doesn't owe a duty to let's take it to get  simpler example your honor if you and i were negotiating over the sale of a house and i made an offer on the house and then we entered an n d a and said look neither of us really want anyone else knowing what i offered you for the house if i then told somebody what i offered for the house i would be preaching a contract but i would be breaching no duty no quasi if you do use your duty to you we're negotiating at arm's length with the opposite and so in order to reach the opposite conclusion if you go all the way back to the case that this court relied on and chessman the walton against morgan stanley case which involved a very parallel situation where you had an acquirer who got confidential information in the context of  negotiation and then used it on behalf of another client morgan stanley got the information then used it on behalf of somebody else this court held that the entrustment of that confidential information was not enough so in order to say that this case is different from what you have to say is everything changes when there's a contractual agreement and i don't think the law sustains that there's no precedent that says it but more importantly it's fundamentally inconsistent with the underlying theory of why insider trading is fraudulent and this court very recently in the o'donnell case made crystal clear that a breach of contract is not a breach of a fiduciary duty or fraud and so with all respect there can be plenty of cases where you have an n d a that's entirely consistent and to share any information about his intentions with mr yen throughout the course of the negotiations and there was no constraint we should look with interest but no concern about the detailed timeline produced by the government to industry and trading after regularly after meeting and at large quantities after meeting with mr chow that this is perfectly legal and no one participating in the  market should have any concerns about it as well just not unlawful is that right that's right your honor and i think that you know that supported by the terms of the n d a itself which if you look at it were the actual covenant not to disclose proprietary information it's proprietary information of the other party but did not also oppose an obligation of confidentiality with respect to the fact of the transaction it it's specifically worded and it's quite limited it defines proprietary information to include the fact of the exploration and evaluation of a potentially strategic relationship now i've and again that's to be clear that's within the definition proprietary information the actual covenant not to disclose is proprietary information of the other party so the way i would read those two together is to say that you can't disclose lattices information about the sort of state of the negotiations but i think the key thing is that probably the most interesting piece of information for you in would be how much check out would be willing to pay his reservation price if he's willing to go up to nine dollars for last then it's almost certain this deal will go through and that would be highly interesting information for you in and i don't see it would violate the nondisclosure agreement of course if it did violate the nondisclosure agreement that would actually show even more clearly that this is anything other than a contractual breach and i can agree with you to not disclose my own information as a matter of contract but i don't think since it's my information and i came to the table with it i wouldn't think the agreement not to disclose it would in any way constitute the kind of duty that you need in order to engage in fraud so one could interpret the n d a differently to say we're not going to talk about this to reflect an agreement that neither side was going to talk about the fact that they were exploring because it affects price i mean there can be any number of reasons that they would choose to protect the transaction i suppose one could i mean it's but at some point if we're going to get into sort of detailed discussions about how you interpret the n d s i mean at some point it seems to be in a criminal prosecution the rule of lenity and similar notions should  cobra and i represent the united states on appeal i also represent the united states before the district court st chows express agreements in the n b a is not to disclose or use information about the proposed merger created a duty of trust  confidence in lattice this court has repeatedly held in chessmen and file code and more recently and walters than express remit of confidentiality creates a duty of trust and confidence under insider trading law walters is is really not an obligation of trust or fiduciary like nature could be inferred from the fact of the n d a this is his own information about his own plans and thinking about whether he wanted to go forward with this transaction was on going to go she asians between him a lot as it takes two to tango your honor they were going back and forth and the state of play in terms of where the merger stood whether it was moving forward whether a contract was going to be saw and was just as much la little direct information about exactly what was share it right we have a trading pattern we have a chronology more than that more than that year out of our e mails messages in which in which child said he's at over here at this company about to sign so you know i think it's the mix of all that information coming together which was you know quite compelling ments fundamental argument i think is that the government's position is  that any n d a will do in other words if you have an n d a that precludes you from sharing information and then you tie the matter what your relationship is between parties that all of those are sufficient is that the government's pos the express agreement will be sufficient to create a duty such that the intentional breach of that duty for personal benefit would violate insider trading well yes his argument is that this is never been applied to this type of situation we have people on opposite sides of  transaction who have entered into one of these n g s is that is he right about that and i'm going to point to this type of situation again you know what i think walter is not the is not two people on the opposite side of a of a negotiation but it is again it's a case is nothing to do nothing countrywide really is an apple here that was a case about whether a breach of a contract created a fraud it didn't address the question about whether a contract can create a duty going forward as a matter of fact according countrywide specifically specifically kaczynski that's correct your honor and that's been argued here before and that same issue has come up and is an exact issue that we have here it is you it is your honor i think there are some technical issues there with which are which makes it you know that is a little bit different the contract wasn't as clear a preponderance of the evidence that the venue was proper in the southern district of new york there were four really for four important for among others but for important facts that go into the venue issue number one the jury had before it evidence that the nasdaq where the lattice was treated is headquartered in manhattan i don't understand why that has anything to do with venue and we're talking about forsee ability in fairness to a defendant who never set foot in this jurisdiction and who is dealing with individuals and entities far from here i mean this strikes me as even we're a loser even crossing over the bridge to staten island from new jersey and new so why was this foreseeable to mr chow and what's your strongest case for broker who executed the transactions was merrill lynch based in manhattan that there's some question about merrill merrill lynch about exactly where that happened but again what is your strongest case that something at the end that's relevant in the southern district of new york that mr chen would have had reason to know about if i can just take those separately so the things that happened the things that happened in the southern district of new york are a evidence before the jury that the naz that was based in manhattan be the evidence before the jury that  merrill lynch was that merrill lynch which was the selling which represented the seller to sell isn't sent to the selling broker was headquartered in manhattan three headquartered here and has nothing to do with where anything actually happened so there were specific testimony that the clearing services that that that merrill lynch performs were occurred in the end it's manhattan headquarters here in manhattan that wasn't and district or eastern sixty one this is the testimony of mr malley i know that merrill lynch is clearing services are located here in manhattan and then he goes on to say and this is at the record of one hundred and thirty six and those clearing and settlement processes are the necessary part of any trade answer absolutely so that final question that was asked to mr brennan from the d t c see so the data in manhattan is used for the production and processing the essential functions of the d t c see answer yes so you have four really independent bas you know the southern district of new york is at the end of the day the financial capital of new york but not only that the nasdaq these stocks here are traded on the nasdaq and you have somebody sophisticated who is actually negotiating here for the you know to know constituent constituent elements of that happened here in the southern district of new york and mr shout was certainly on foreseeable notice negotiating for the for the purchase of this company that tree on the nasdaq that there would be events here and thank you very much i think we have he you your honor i'd like to make three points in st as to the fundamental question about whether you can have a purely contractual duty that sufficient for fraud i mean i don't make up the term quasi fiduciary that is right from this court's case and testament and if you read chessman it's clear why this case is so problematic because chessman in talking about the ret and necessary quasi duty relationship of trust and confidence talks about notions of dependence and discretionary judgment all of that makes sense when you're talking about a employment relationship an attorney client relationship you give discretion to your agent then become dependent on your agent none of that's true when you cross the tracks of course check out was a fiduciary to his funds but he had no fiduciary relationship to lattice whatsoever there's no dependency there's no discretion for him to act on their behalf this is completely unprecedented extension and the reason that donald the countrywide cases are relevant is because they make crystal clear that just because you have a breach of contract you don't have a breach of a fiduciary duty or fraud as to the nd point i'd like to make  you made the point about whether there was even a breach of the specific n d a i think if you look at the n d a and the critical provisions in there on june th two hundred and thirty six and forty three the way this is structured is there's a definition of proprietary information disclose the proprietary information of the other party so even if the information about the status of the deal constitutes proprietary information you still only coveting covenant not to disclose the information of the other party so i even think this is covered by it and the reason that's so critical is because of the thinness of information just one point on venue with all due respect what they have here is the evidence that  cleared these transit regt rather closed these transactions in brooklyn on the wrong side of the river all they have with respect to merrill lynch is clearing services which is just the internal bookkeeping of merrill lynch in making these transactions it's never been held to be a critical step in the transaction and if you want to go back to the th amendment which says that you're only supposed to try somebody in the district where the crime was committed maybe oregon maybe california but the idea that this crime was committed in the southern district where my client never stepped foot